If you haven’t already, check out the introductory article Taxes: The Basics of the Breaks to give you some general knowledge on tax breaks. Now let’s dive into some common tax breaks that individuals and households see and how to examine these in IMPLAN.
LABOR INCOME VS HOUSEHOLD INCOME:
There are two choices to model changes going straight to taxpayers in IMPLAN: Labor Income and Household Income. Let’s first look at the difference between Labor Income Household Income as illustrated below.
Labor Income Events include all new labor payments including payroll tax, personal tax, and savings, as well as any labor payments to in-commuters who are local workers to the Region, but are not residents.
Household Income differs from Labor Income as it does not include the payroll tax paid on Labor Income nor does it include payment to workers that don’t live in the Region. Household Income does include personal taxes and savings. For Household Income Events, IMPLAN will not remove payroll taxes, social insurance taxes, or commuter spending, but will still remove personal taxes and savings.
When a Labor Income or Household Income Event is used, IMPLAN will calculate the leakages of income and the portion of income that is Household Spending based on the SAM. For further information check out the article on the Summary Description of Elements of the SAM.
There are many government programs aimed at helping people from housing vouchers to encouraging the use of energy efficient appliances. As the analyst, you will have to decide which income categories will receive the benefit when using a Household Income Event and model them accordingly. For example, child care assistance is likely alloted to lower income earning categories.
For some tax breaks income level is not relevant; for example a tax refund for all taxpayers across the board. These kinds of tax rebates are not taxable, so they should be modeled through a Household Income Event. One caution when modeling these, however, is that while some of those receiving the benefit will likely spend all of it, some may put the refund into savings (and therefore should be omitted from the model). You can find the average savings rate by looking Behind the i in
Social Accounts >
IxC Social Accounting Matrix >
Detail IxC SAM
Then scroll to line 180 - Capital - Borrowing or Saving. You can divide the amount shown for each Household Income group by the total for that Household Income groups column to get an effective savings rate for each group. Note you will usually only see savings at higher earning levels.
To model the impact of a change in a specific program like Supplemental Nutrition Assistance Program (SNAP) benefits, there are two routes. The first option is to run increased spending through the main affected Industry; in this case 406 - Retail - Food and beverage stores. This assumes that this money will only stimulate the economy in terms of food purchases. However, you could also assume that the assistance allows families to have more money across various spending categories now that their food costs are being covered. In this case use a Household Income Event and analyze increases to only the income levels that will receive the benefit. Note that this method will still include spending on food.
Many municipalities offer tax breaks for the purchase of items like solar panels or energy efficient appliances. The reduction in the price of the item can be modeled with appropriate assumptions noted. The lowered price for the capital purchase could mean an increase in disposable income which can be modeled through a Household Income Event. However, the lowered price could just mean more money is moved into savings and has no impact.
You can also consider an increase in demand for capital items if they are manufactured in your study area. Perhaps the lowered price will incentivize more individuals to use the program and therefore purchase the required equipment. If this equipment is produced in your Region, you could model the increased sales of the manufacturing facility.
Property Taxes paid by Households are not displayed as a payment from Households; but rather from the TOPI column because Households pay Property Taxes on their home through Industry 449 - Owner-occupied dwellings. You can find the Property Taxes paid in your Region by looking Behind the i in
Social Accounts >
IxC Social Accounting Matrix >
Detail IxC SAM
Column 8001 - Taxes on Production & Imports makes a payment to line 159 - State/Local Govt Other Services - TOPI: Property Tax. The Property Taxes shown as being paid by Households are for other big-ticket items such as boats and cars.
As with modeling any type of tax break that affects individuals, you will have to make assumptions. For example, what would an increase in Property Taxes look like in your Region? Would that mean less disposable income (negative Household Income Event) or less in savings? Might some people even leave the Region in the face of an egregious rate hike?
Examining changes in Sales Tax rates depends again on what assumptions are being made about changes to spending within the Region. For a Sales Tax increase, the most basic level would be a negative Household Income Event showing less disposable income that can be spent due to the higher Sales Tax rate. However, be careful. If the county next door has a significantly lower tax rate, some of the shoppers from your county will likely head into the county with lower Sales Tax for bigger shopping days. This could mean decreased sales across retail Industries in your county. It could potentially mean the loss of some retail establishments in your Region.
If you wanted to look at Sales Tax that would be generated because of new employees in the Region, you can model the new employment through the appropriate Industry and check out your Results. The total tax impacts reported are those generated from the Event you ran. Filtering for the Induced Impact on the Tax Results screen will show the TOPI: Sales Tax stemming the household spending of the new employees and those working in Industries supported by your initial change. You could then estimate a per employee Sales Tax figure for your impact by dividing the Induced Sales Tax by the Direct + Indirect employment.
Written December 30, 2019