THE JOINT COMMITTEE ON TAXATION 

REVENUE ESTIMATING PROCESS

Prepared by the Staff of the Joint Committee on Taxation

February 2019
Outline

 The Staff

 Baseline and Proposal Receipts Projections

 JCT Models

 Dynamic Microeconomic Estimates

 Quality Control

 Macroeconomic Analysis

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JCT Revenue Estimating Overview

 The JCT staff provides estimates relative to baseline receipts 

projected for future years under present law, not relative to receipts 

in years prior to the enactment of the proposal.

 The JCT staff incorporates many types of behavioral responses in 

revenue estimates.

 The JCT staff generally assumes a fixed GNP when preparing 

conventional revenue estimates.

 The JCT staff began developing a capacity to model the 

macroeconomic (growth) impacts of tax policy proposals in 1996. 

Macroeconomic analysis has been provided to the Congress since 

2003.

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JCT Revenue Estimating Staff (2019)

 20 PhD economists specialize in the budget analysis of tax legislation, with 

median experience on staff in this work equal to 10 years.

 These economists work with staff tax attorneys, other PhD economists, and 

accountants.

 JCT uses an interdisciplinary approach:

 Every JCT revenue estimate is a joint product of the insights of the economic, 

legal, and accounting professions;

 This approach ensures that estimates accurately reflect proposed legislation 

and realistically include taxpayer behavioral responses.

 The JCT revenue estimating staff provided approximately 6,600 revenue 

responses to requests during the 115th Congress.

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Revenue Estimate Request Process

 Any member of Congress may request a revenue estimate 

of proposals to modify the Internal Revenue Code by 

sending a written request to the Chief of Staff of the JCT.

 See Appendix.

 Members often ask for help in crafting their proposal so 

that statutory language reflects the policy intent of the 

proposed legislation.

 All requests are treated as confidential and are discussed 

only with the requesting member’s office.

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What is a JCT Revenue Estimate?

 A JCT revenue estimate compares predicted Federal revenues under the 

proposal with predicted revenues under present law. The revenue estimate 

equals:

 Predicted future revenues under proposed new law (proposal revenues).

 Less predicted future revenues under present law (baseline revenues). 

 A year by year estimate is provided over the 10-year “budget window.”

 The distinction between current revenues and baseline revenues is important. 

 JCT estimates are comparisons with predictions of future revenues under present law, 

not current revenue levels.

 The receipts under a new proposal in a future year may be higher than at present, but still 

lower than the forecasted present law receipts in that year.

 JCT would estimate such a proposal as losing revenue (less revenue than the 

baseline).

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Example: Simultaneous Revenue “Losses”

and Higher Federal Receipts

 JCT estimated that the “Jobs and Growth Tax Relief and Reconciliation Act” of 2003 would “lose” 

revenue.

 These losses were relative to baseline projections of growing receipts.

 Projections of revenue losses were both consistent with, and a good prediction of, increases in actual 

government receipts relative to prior years.

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2002 2003 2004 2005 2006

Fiscal Year Federal Receipts, Current Dollars,

[in Billions]

CBO January 03 Forecast CBO Forecast plus JCT JGTRRA Estimate Federal Receipts Actual
JCT Tax Models

 JCT tax models simulate future taxpayer behavior under the present law 

baseline and under the proposal.

 JCT uses many different models to forecast receipts from different types of 

taxes:

 An individual tax model for the individual income tax and from employment taxes;

 A corporate model for the corporate income tax;

 A foreign model for cross-border business income;

 An estate and gift model for changes to estate and gift taxes;

 Many different excise tax models;

 And many smaller tax, credit, or exclusion specific models.

 Each model incorporates relevant taxpayer behavior, such as:

 Changes in the timing of transactions and income recognition; 

 Changes between business sectors and among legal entities;

 Changes in the types and timing of consumption and investment; 

 Tax planning and tax avoidance (or evasion) strategies.

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Example: Individual Tax Model

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 JCT’s Individual Tax Model is a representation of all 177 million U.S. tax 

filing units (actual and potential).

 All categories of taxpayers;

 For each of the 10 years in the budget window;

 Taking into account projected economic, demographic and social trends.

 The statistics of Income (“SOI”) Division of the IRS provides the JCT with 

data from a sample of individual income tax returns and their associated 

supplementary forms.

 Each return in the stratified sample is assigned a “weight,” which indicates how 

many taxpayer units that return is assumed to represent.

 The weights are generated to ensure that weighted totals for a large number of 

demographic, income, deduction, and other items match the totals for the entire 

universe of taxpayers.
Example: Individual Tax Model (cont’d)

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 The Individual Tax Model uses a detailed representative sample of more 

than 337,000 actual income tax returns filed by U.S. taxpayers.

 Uses information returns (W2s, 1099-INTs, etc.) to impute information about tax 

filing units that did not file tax returns in the sample year.

 Inputs information not reported on tax returns using multiple additional data 

sources, including:

 The Social Security DM – 1 file

 The Medical Expenditure Panel Survey

 The Consumer Expenditure Survey
Calibration of the Individual Tax Model

 Each year the Congressional Budget Office produces a budget baseline 

that includes a forecast of present law tax receipts for the 10-year 

budget period.

 JCT economists extrapolate – or grow and re-weight ─ the basic year 

data to conform to the economic assumptions in the CBO forecast.

 For example, if the base year data were drawn from a peak in the business 

cycle, a larger share of taxpayers would have wages and capital gains than 

during a recessionary year.

 In extrapolating sample year data to match a weaker economy, weights on 

returns with wages and gains might be reduced, while weights on returns with 

unemployment insurance or capital losses would be increased.

 JCT economists use a non-linear programming (constrained optimization) 

algorithm to adjust weights such that a number of economic targets are hit 

simultaneously for each year from 2018 through 2029.

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Individual Tax Model Tax Calculator

 The core of the Individual Tax Model is a tax calculator that simulates 

taxpayers filling out tax returns – in some ways like commercial tax 

preparation software.

 The calculator incorporates all aspects of the present-law individual tax code 

(i.e., rates, deductions, credits, alternative minimum tax, phaseouts).

 To estimate a proposal, the calculator is run once assuming a base law 

(usually present law), and once after the proposed change has been 

incorporated.

 If the proposal would change the optimum filing choice for a taxpayer, such as 

choosing between the standard deduction and itemizing, the calculator takes that 

into account.

 Some additional behavioral responses are built into the calculator, while others 

are incorporated later.

 The difference between the two simulations is the foundation for the revenue 

estimate.

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Taxpayer Behavior in JCT Tax Models

 Every JCT revenue estimate is a “dynamic” estimate; estimates reflect 

many types of predicted taxpayer reactions to a new law.

 Predicting behavioral responses requires original research as well as 

JCT economists’ knowledge of the relevant economics literature.

 Consistent with economic theory, JCT tax models assume that taxpayers 

will largely behave rationally, while taking into account other behaviors 

as indicated by data and recent research.

 JCT attorneys and accountants help the economists to better understand 

the law and taxpayer planning or avoidance opportunities.

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Behavior in Conventional Revenue Estimates

 Based on information from economics and legal research and from 

original research, a revenue estimate reflects a range of behavioral 

responses, such as:

 Changes in the time of transactions and income recognition.

 Realization of capital gains in response to changes in gains tax rates.

 Issuance of corporate dividends in response to changes in dividend tax rates.

 Acceleration of bonuses in anticipation of an individual income tax increase.

 Changes among business sectors or the legal form of doing business.

 Organizing as a partnership in response to rising corporate rates or falling 

individual rates.

 Shifts in investment from more heavily taxed sectors to more lightly taxed 

sectors.

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Behavior in Conventional Revenue Estimates (cont’d)

 Changes in types of portfolio investments.

 Shifts from bonds to stocks in response to dividend or capital gains changes.

 Shifts from taxable to tax-favored savings investments.

 Changes in the amount, types, and timing of consumption.

 Reduced consumption of items that experience an excise tax increase.

 Increased consumption of goods that are tax-favored, such as employersponsored health insurance and mortgage indebtedness.

 Tax planning and tax avoidance strategies.

 Use of foreign tax credits and income allocation rules.

 Structuring of compensation to obtain capital gains rather than income taxed 

at ordinary rates.

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Conventional Analysis − Example 1

 Estimating the Revenue Effect of a Tobacco Excise Tax Increase

 JCT starts with the CBO tobacco excise tax baseline.

 JCT expands that data to encompass the detail required to estimate the proposal.

 JCT economists research price elasticities of cigarette consumption in the range 

contemplated by the new tax increase.

 JCT economists modify the excise tax model to reflect empirical evidence regarding 

how smokers will respond to these higher prices:

 Some potential smokers will never start;

 Some smokers will decide to quit;

 Some smokers will reduce the amount they smoke.

 Results: JCT estimated that the changes made in 2009 to raise the tobacco excise 

tax by $0.61/pack would result in 1.5 billion fewer packs of cigarettes sold 

annually.

 The revenue estimate reflected this smaller tax base.

Reference: JCX-101-07

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Conventional Analysis − Example 2

 Estimating the revenue effect of the high premium excise tax on employer 

sponsored health insurance above certain thresholds.

 Employer paid health insurance is currently nontaxable.

 JCT uses newly available tax information returns as a primary source of information 

about coverage and premiums.

 Because information report is new and incomplete. JCT uses data from a variety of 

sources to statistically impute insurance coverage and premium values to each 

taxpayer.

 Total amounts of insurance coverage are calibrated to match the CBO health baseline.

 The high premium excise tax thresholds are higher for people with highrisk jobs or in firms with a relative large number of older workers or 

women. JCT imputes higher thresholds to individuals based on 

information about industry and age distribution.

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Conventional Analysis − Example 2 (cont’d)

 Using elasticities (behavioral responses) from economics 

literature, JCT predicts the effects of the excise tax on:

 changes in prices of health insurance plans;

 changes in the mix of employee compensation between health insurance 

and cash wages; and

 changes in levels of coverage in employer plans (in coordination with 

the Congressional Budget Office).

 Results: Revenue estimate reflects projected changes in income 

and payroll tax receipts that result from changes in 

compensation taking account of reduced coverage and 

premiums in response to the excise tax, as well as excise tax 

receipts.

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Accounting for Proposal Interactions

 Many tax bills make multiple changes to the tax code that interact with each other, 

such as

 Simultaneously changing tax rates and adding or eliminating deductions or 

 Adding a category of activity that is eligible for an expiring tax credit while extending 

the credit.

 A revenue table with separate estimates for each provision in such a bill accounts 

for interactions either by

 Adding a separate line for interaction effects or

 Incorporating the interaction effect between two provisions into the estimate of one of the 

provisions.

 Incorporating the interaction effects into the estimate of one of the provisions is referred to as 

“stacking” the interacted provision after the non-interacted provision.

 For example, for a bill that reduces tax rates and changes deductions, the estimate of the tax rate 

change may be “stacked first” (without the interaction effect) while the deduction estimates 

(“stacked after the rate change”) would incorporate the interaction effect by being estimated 

assuming the rate change.

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JCT 

Quality 

Control 

and 

Process
Limits of the Conventional Estimate

 A conventional JCT estimate incorporates behavioral responses in 

projecting tax revenues, but generally assumes that these tax and 

behavioral changes do not change the size of the US economy, as 

measured by the Gross National Product (“GNP”).

 The fixed GNP constraint generally results in the following types of 

assumptions.

 Total labor supply, employment and investment do not change, so that

 a wage credit in certain industries will result in a shift of employment into 

the favored industry, but the overall size of the labor force stays the same; 

 a tax credit for certain types of investment or production will result in shifts 

in investment to the tax favored activity, but the overall level of investment 

stays the same.

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Macroeconomic Analysis,

2003 - 2014

 From 2003 - 2014, the JCT staff was required by House Rule XIII(3)(h)(2) 

to provide a macroeconomic impact analysis of all tax legislation 

reported by the Ways and Means Committee.

 For most tax bills, the expected effects are so small that a brief statement was 

all that was required.

 Legislation that involved large policy changes required more detailed analysis.

 Forecasted macroeconomic impacts are sensitive to assumptions about 

taxpayer responsiveness, fiscal and monetary policy, and general modeling 

frameworks.

 The JCT staff generally provided a range of estimates in these macroeconomic 

analyses to account for different assumptions regarding taxpayer 

responsiveness and modeling frameworks.

 These analyses can be found at http://www.jct.gov/publications.html under 

“Macroeconomics.”

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Macroeconomic Analysis,

2015 - 2018

 In 2015, the House adopted a new “dynamic scoring” rule, XIII(8)(b), which was eventually 

incorporated into a joint Concurrent [House-Senate] Budget Resolution for the 114th

Congress.

 The House affirmed the application of this rule for the 115th Congress.

 The new rule requires a point (single) estimate within the budget window of the deficit effect 

due to the macroeconomic response to certain proposed legislation.

 The requirement applied to bills with gross budget effects >0.25% of GDP (about $49 billion in 

2017) in any year.

 It also required qualitative analysis for 20 years after the budget window.

 Estimates produced by JCT staff pursuant to this new rule can also be found at 

http://ww.jct.gov/publications.html under “Macroeconomic;” several others were produced in 

collaboration with the Congressional Budget Office and issued as CBO documents.

 The House Rules adopted by the House in 2019 removed all requirements related to 

macroeconomic analysis and dynamic scoring.

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JCT Macroeconomic Models
Macroeconomic Equilibrium Growth Model (MEG)

 In the MEG model, prices adjust so that demand equals supply in the long run, but not necessarily in 

the short run.

 MEG models household consumption according to life-cycle consumption patterns.

 Labor supply responses to changes in after-tax wages (elasticities) are separately modeled for four 

different groups:

 High-income primary earners;

 High-income secondary earners;

 Low-income primary earners; and

 Low-income secondary earners.

 Household saving and consumption respond to the after-tax return to saving and after-tax income. 

We refer to this response as the marginal propensity to consume (“MPC”).

 Business production and housing production are modeled separately. Business investment responds 

to changes in the user cost of capital (the after-tax return on investment).

 MEG is an open economy model; cross border capital flows and changes in net exports affect 

domestic economy outcomes.

 Individuals are myopic. They do not anticipate changes in the economy or government policy.

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Overlapping Generations Model (OLG)

 Unlike the MEG model, the OLG model assumes that prices adjust to any changes in 

economic conditions (such as a change in fiscal policy) so that supply equals demand in 

both the short and long run.

 Economic decisions are modeled separately for each of 55 adult-age cohorts.

 OLG model has separate production sectors for business and housing.

 Key parameters (as in MEG) include:

 Responsiveness of labor supply to changes in the after-tax wage rate;

 Responsiveness of saving and consumption to the after-tax return to saving and after-tax income;

 Responsiveness of investment to the user cost of capital.

 OLG is a perfect foresight model.

 Responsiveness of individuals to expected future changes in after-tax rates of return are 

important.

 The model cannot allow the Federal government debt to grow faster than GDP for an 

indeterminate period.

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Dynamic Stochastic General Equilibrium Model 

(DSGE)

 In the DSGE model, similar to in the MEG model, sticky prices and adjustment costs cause 

output to be sensitive to demand.

 Unlike the MEG and OLG models, the DSGE model accounts for uncertainty - agents face 

uncertainty about future states of the economy, which can affect their decision-making.

 As in the OLG model, the DSGE model cannot allow the Federal government debt to grow 

faster than GDP for an indeterminate period.

 Varying anticipation of the length of this adjustment period can provide insight into the effects of this 

assumption.

 Varying the length of anticipated fiscal adjustments also allows analysis of announcement effects for 

policies.

 Economic decisions are modeled separately for savers and non-savers.

 Non-savers do not own capital, have no access to credit markets, and have lower incomes.

 Non-savers may respond differently from savers to tax policy changes.

 As in the other models, key behavioral parameters are those that governs the responsiveness 

of these groups to saving and work incentives.

 The DSGE model is currently a closed economy that does not model international capital 

flows.

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JCT Macroeconomic Analysis − Example

 The “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 

2010,” extended tax cuts from 2001 and 2003 for the years 2011 and 2012.

 The JCT staff estimated that the bill would increase real GDP between 0.6 and 1.7 

percent during 2011-2012 relative to present law, primarily because of extra demand 

that would be generated by the tax cuts.

 By the end of the 10-year budget period, these effects were estimated to reverse, with 

GDP decreasing by 0.2 to 0.5 percent relative to present law during 2016-2020, as 

increased borrowing by the Federal government crowds out some private investment.

 Correspondingly, the JCT staff estimated that there could be a 0.2 to 0.3 percent 

increase in receipts due to the increase in GDP in 2011-12, and a 0.3 to 0.6 percent 

decrease in receipts due to the decrease in GDP during 2016-2020.

Reference: JCX-48-11

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JCT Dynamic Score − Example

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 Pursuant to the new House Rules in effect from 2015-2018, JCT staff provided point estimates 

of the revenue effects of major tax legislation, with accompanying point estimates of changes 

in key macroeconomic aggregates

 In 2017, JCT staff provided this analysis for three versions of the tax reform proposal that 

was enacted in December 2018 as Pub. L. No. 115-97 

 The JCT staff estimated that the Pub. L. No. 115-97 would increase real GDP by about 0.7 percent on 

average over the 2018-2027 budget window, due to increased investment in response to a reduction 

in the after tax cost of capital and increased labor effort in response to a reduction in the marginal 

tax on labor throughout most of the budget window

 Correspondingly, JCT staff estimated that capital stock would be 0.9 percent higher on average over 

the budget window than under the bill than under prior law, while employment would be roughly 0.6 

percent higher on average

 Because both bonus depreciation and the reduction in the marginal tax rate on labor were phased-out 

or eliminated by 2026, the change in GDP was estimated to be reduced to 0.1 to 0.2 percent by the 

end of the budget window

 JCT staff estimated that the growth projected to result from the bill would reduce the revenue loss as 

conventionally estimated by about $451 billion over 2018-2027 budget period, while the increased 

debt would increase the cost of Federal debt service by about $66 billion over the budget window.

Reference: JCX-69-17
Further References on the JCT Estimating

Models and Process

JCX-89-18: New Income and Payroll Tax offsets to Changes in Excise Tax Revenues for 

2018-2018

JCX-5-17: New Income and Payroll Tax Offsets to Changes in Excise Tax Revenues for 2017-

2027

JCX-2-17: Estimating Changes in the Federal Individual Income Tax: Exploring the Elasticity 

of Taxable Income

JCX-90-16: Factors Affecting Revenue Estimates of Tax Compliance Proposals: A Joint 

Working Paper of the Congressional Budget Office and the Staff of the Joint Committee on 

Taxation

JCX-89-16: The Income and Payroll Tax Offset to Changes in Payroll Tax Revenues

JCX-75-15: Estimating Changes in the Federal Individual Income Tax: Description of the 

Individual Tax Model

JCX-76-12: Modeling the Federal Revenue Effects of Changes in Estate and Gift Taxation

JCX-60-12: The Federal Revenue Effects of Tax-Exempt and Direct-Pay Tax Credit Bond 

Provisions

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Further References on the JCT Estimating Models

and Process

JCX-56-12: New Evidence on the Tax Elasticity of Capital Gains: A Joint Working Paper of 

the Staff of the Joint Committee on Taxation and The Congressional Budget Office

JCX-59-11: The Income and Payroll Tax Offset to Changes in Excise Tax Revenues

JCX-48-11: Testimony of the Staff of the Joint Committee on Taxation before the House 

Committee on Ways and Means Regarding Economic Modeling

JCX-46-11: Summary of Economic Models and Estimating Practices of the Staff of the Joint 

Committee on Taxation

JCX-101-07: Modeling The Federal Revenue Effects of Proposed Changes in Cigarette 

Excise Taxes

JCX-17-07: Estimating The Revenue Effects of the Administration’s Fiscal Year 2008 Proposal 

Providing a Standard Deduction for Health Insurance: Modeling and Assumptions

JCX-53-06: Macroeconomic Analysis of a Proposal to Broaden the Individual Income Tax 

Base and Lower Individual Income Tax Rates

JCX-19-06: Exploring Issues in the Development of Macroeconomic Models for Use in Tax 

Policy Analysis

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Appendix
Procedures for Congressional Members

Procedures for Congressional Members requesting revenue estimates from the Joint 

Committee on Taxation are as follows:

1. Address request to:

Thomas A. Barthold, Chief of Staff

Joint Committee on Taxation

502 Ford House Office Building

Washington, DC 20515

2. Request must be submitted on Member’s letterhead and signed by the member.

3. Reference the subject and provide any supporting bills or documentation relating to the proposal 

for which the request is being submitted. A proposal need not have been introduced as a bill but 

must include sufficient detail for a revenue estimate to be prepared. Questions concerning 

whether proposals are sufficiently detailed should be directed to the Joint Committee’s main 

office at Extension 5-3621.

4. List the name and contact information of the person in the Member’s Office handling the request.

Requests may also be sent via interoffice mail, hand carried directly to Room 502 of the Ford House Office Building, or faxed to

5-0832 (please follow-up with “hard-copy” originals).

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