Uncover the Secrets of the Tax Foundation Model: Dive into the World of General Equilibrium Modeling!

Exploring The Tax Foundation’s Advanced Modeling Techniques

Do you ever wonder how government tax and spending policies impact the economy? The Tax Foundation uses an innovative General Equilibrium Model known as the Taxes and Growth (TAG) Model to answer this question. This model goes beyond traditional revenue estimates and dives deep into the effects of different tax policies on macroeconomic indicators.

Here are the key components of The Tax Foundation’s model:

• Tax Simulator: This component estimates revenue and distributional impacts of tax policies, along with marginal tax rates on various sources of personal and business income.
• Neoclassical Production Function: This part predicts long-run changes in output based on adjustments in the capital stock and labor force due to policy changes.
• Allocation Model: By combining outputs from the tax simulator and production function, this model forecasts components of GDP, saving and investment balance, international accounts, wealth, and gross national product (GNP).

The Tax Foundation’s model provides both long-run and year-by-year analyses of how tax policies affect economic adjustments and government budgets.

Key Improvements to The Tax Foundation’s Model

1. Updated Baseline Data: The model now reflects the 2025 baseline, resulting in more accurate revenue estimates based on January 2025 economic variables.
2. Matched Database Integration: By incorporating data from the Current Population Survey, the model now includes imputed demographic information, enhancing payroll tax modeling.
3. Enhanced User Cost of Capital: The user cost of capital formula now considers the required rate of return for businesses and individual savers separately, creating a more detailed representation of the economy.

Furthermore, the Tax Foundation improved its corporate tax liability model by incorporating detailed data from the IRS and BEA. This enhanced model allows for more accurate estimates of corporate tax liabilities across different industries and types of firms.

In conclusion, The Tax Foundation’s General Equilibrium Model provides a comprehensive analysis of tax policies’ effects on the economy. By continually updating and enhancing their model, The Tax Foundation remains at the forefront of economic analysis in the taxation realm. If you want to stay informed on tax policies and their impact, subscribe to receive insights from The Tax Foundation’s experts delivered directly to your inbox.