These Stata programs describe a method to calculate income and payroll taxes from Panel Survey of Income Dynamics data using the NBER's Internet TAXSIM version 9, for PSID survey years 1999, 2001, 2003, 2005.

These methods are implemented in two Stata programs: PSID_TAXSIM_1of2.do and PSID_TAXSIM_2of2.do. The main program (2of2) was written by Sara Kimberlin (skimberlin@berkeley.edu) and generates all TAXSIM input variables, runs TAXSIM, adjusts tax estimates using additional information available in PSID data, and calculates total PSID family unit taxes. A separate program (1of2) was written by Jiyoun (June) Kim ( junekim@umich.edu) to calculate mortgage interest for itemized deductions; this program needs to be run first, before the main program.

The overall methods build on the strategy for using TAXSIM with PSID data outlined by Butrica & Burkhauser (1997)[1], with some expansions and modifications.

Note that the methods described below are designed to prioritize accuracy of income taxes calculated for low-income households, particularly the EITC. Income tax liability is generally low for low-income households, and the refundable EITC is often substantially larger than tax liabilities for this population. Payroll tax can also be substantial for low-income households. Thus the methods below focus on maximizing accuracy of EITC and payroll tax calculations, with less attention to tax items that largely impact higher-income households (e.g. non-refundable credits or capital gains).

[1] Butrica, B. & Burkhauser, R. (1997). Estimating federal income tax burdens for Panel Study of Income Dynamics (PSID) families using the National Bureau of Economic Research TAXSIM model. Aging Studies Program Paper No. 12. Syracuse, NY: Center for Policy Research, Maxwell School of Citizenship and Public Affairs, Syracuse University.