TAXSIM

TAXSIM is a computer program used to simulate the U.S. federal income tax system. Developed by Lawrence Summers and Jonathan Gruber, it has been widely used by academics, policymakers, and government agencies to analyze the effects of proposed tax changes. The program allows users to model various tax policy scenarios, such as changes in tax rates, deductions, credits, and other provisions of the Internal Revenue Code.

The core functionality of TAXSIM involves using microdata from the U.S. Census Bureau's Survey of Income and Program Participation (SIPP) and the Internal Revenue Service's Statistics of Income (SOI) data. By applying the rules of the tax code to individual tax returns within these datasets, TAXSIM can estimate the revenue impact, distributional consequences, and other effects of specific tax policies. It accounts for factors like income levels, filing status, dependents, and various tax expenditures.

Researchers often employ TAXSIM to quantify the potential economic effects of tax reform proposals. For instance, it can be used to determine how a particular tax cut or increase would affect different income groups, whether it would lead to a budget surplus or deficit, and its implications for incentives to work and invest. The program's flexibility allows for detailed analysis and customization of tax parameters.

Over time, TAXSIM has been updated and refined to reflect changes in the tax law and to incorporate improved modeling techniques. Its continued use underscores its importance as a tool for understanding and evaluating tax policy in the United States. While it provides valuable insights, it's important to note that the simulations are based on specific assumptions and data, and actual outcomes may vary.