Measure benefit-taxation revenue as chapter 1 liability

changelog.d/tob-chapter-1-liability.fixed.md

@@ -0,0 +1 @@
+Measure Social Security benefit-taxation trust-fund revenue using chapter 1 income tax liability after nonrefundable credits and before refundable credits, excluding net investment income tax and unreported payroll tax.

docs/usage/social-security-oasdi-accounting.md

@@ -25,11 +25,16 @@ leaf reaches the sum through that leaf. The owners' draw reform's
 `self_employment_social_security_tax` adds `owners_draw_oasdi_tax`, so the draw's
 OASDI tax counts once; don't add it again.
 
-`oasdi_benefit_taxation_revenue` is the OASDI share of income tax on benefits:
-the tax with section 86 inclusion as before the 1993 amendments, less the tax
-with no inclusion. The HI share, `tob_revenue_medicare_hi`, stays out. The share
-carries a sign: a unit whose tax falls when its benefits enter income contributes
-a negative amount, so sum units without a floor.
+`oasdi_benefit_taxation_revenue` is the OASDI share of income tax on benefits.
+It measures `income_tax_chapter_1`, chapter 1 liability after nonrefundable
+credits and before refundable credits. The share is that liability with section
+86 inclusion as before the 1993 amendments, capped at actual inclusion, less the
+liability with no inclusion. At current law the cap changes nothing. When a
+reform cuts inclusion below the pre-1993 amount, the 1993 amendments add
+nothing, so OASDI takes the whole increase. The HI share,
+`tob_revenue_medicare_hi`, stays out. The share carries a sign: a unit whose tax
+falls when its benefits enter income contributes a negative amount, so sum units
+without a floor.
 
 `oasdi_niit_revenue` is the OASDI transfer that the enabled S.770 section 8
 options select. It is zero unless an option applies, and it counts only the
@@ -52,20 +57,17 @@ for the transfer modes.
   income, isn't part of `oasdi_income`. A score that enables that reform adds it
   separately.
 
-### Benefit taxation and the NIIT transfer overlap
-
-`tob_revenue_oasdi` takes the difference in `income_tax`, which includes
-`net_investment_income_tax`. Including benefits raises adjusted gross income and
-so `niit_magi`, so any NIIT that benefit inclusion triggers lands in the benefit
-taxation term. The trust fund transfer covers only chapter 1 income tax
-liabilities, and the NIIT sits in chapter 2A, so that piece doesn't belong in
-the term even at baseline. With an S.770 section 8 option on,
-`oasdi_niit_revenue` also transfers shares of the section 8 add-on and active
-taxes, and in bill or combined-rate mode of the existing-rate NIIT. Benefit
-inclusion raises those taxes too, so `oasdi_income` counts that part of the
-increase in both terms. The fix belongs in `tob_revenue_oasdi`, which these
-outputs read unchanged. Until it lands, treat `oasdi_benefit_taxation_revenue`,
-and so `oasdi_income`, as overstated by the NIIT that benefit inclusion adds.
+### Benefit taxation and the NIIT transfer
+
+`tob_revenue_oasdi` takes the difference in `income_tax_chapter_1`, which leaves
+out `net_investment_income_tax`. Including benefits raises adjusted gross income
+and so `niit_magi`, so benefit inclusion can trigger NIIT. The trust fund
+transfer covers only chapter 1 income tax liabilities, and the NIIT sits in
+chapter 2A, so that NIIT stays out of the benefit taxation term. With an S.770
+section 8 option on, `oasdi_niit_revenue` transfers shares of the section 8
+add-on and active taxes, and in bill or combined-rate mode of the existing-rate
+NIIT. Benefit inclusion can raise those taxes too. `oasdi_income` counts the
+transferred share of that increase once, in the NIIT transfer term.
 
 ## Entity mapping and weights
 
@@ -125,9 +127,10 @@ describes the repairs.
    It checks the artifact's hash and base year and the four benefit components'
    sources. It also rejects stored columns that would bypass these formulas: the
    six outputs above, aggregate `social_security`, the worker and employer OASDI
-   tax leaves, the TOB revenue leaves, and the NIIT liability and transfer
-   leaves, including the S.770 section 8 and owners' draw tax and OASDI
-   transfer leaves. Keep the receipt with the score.
+   tax leaves, the TOB revenue leaves and the `income_tax_chapter_1` they
+   difference, and the NIIT liability and transfer leaves, including the S.770
+   section 8 and owners' draw tax and OASDI transfer leaves. Keep the receipt
+   with the score.
 
 2. **Score in household chunks.** On main, `tob_revenue_oasdi` recalculates
    income tax in two branches of the whole simulation, so its working memory

policyengine_us/tests/code_health/test_social_security_preflight.py

@@ -99,6 +99,7 @@ def test_reported_columns_are_not_migrated_again(tmp_path):
         "employer_social_security_tax",
         "self_employment_social_security_tax",
         "employer_total_social_security_tax",
+        "income_tax_chapter_1",
         "net_investment_income_tax",
         "niit_liability",
         "niit_revenue_oasdi",
@@ -168,6 +169,7 @@ def test_missing_component_cannot_be_invented_from_aggregate(tmp_path):
         "social_security",
         "social_security_retirement",
         "tob_revenue_oasdi",
+        "income_tax_chapter_1",
         "social_security_payable_factor",
     ],
 )

policyengine_us/tests/policy/baseline/gov/irs/tax/federal_income/income_tax_chapter_1.yaml

@@ -0,0 +1,59 @@
+- name: Chapter 1 retains its additions and excludes NIIT and unreported payroll tax
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    filing_status: SINGLE
+    income_tax_before_credits: 20_000
+    income_tax_capped_non_refundable_credits: 500
+    recapture_of_investment_credit: 200
+    qualified_retirement_penalty: 300
+    niit_magi: 224_000
+    net_investment_income: 190_000
+    unreported_payroll_tax: 250
+    income_tax_refundable_credits: 0
+  output:
+    # NIIT = 3.8% * min(190,000, 224,000 - 200,000).
+    net_investment_income_tax: 912
+    income_tax: 21_162
+    # 20,000 + 200 + 300 - 500 = 21,162 - 912 - 250.
+    income_tax_chapter_1: 20_000
+
+- name: Refundable EITC is a payment and does not reduce chapter 1 liability
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 30
+    employment_income: 10_000
+    filing_status: SINGLE
+    state_code: TX
+    meets_eitc_identification_requirements: true
+    takes_up_eitc: true
+    would_file_if_eligible_for_refundable_credit: true
+  output:
+    income_tax_before_credits: 0
+    income_tax_capped_non_refundable_credits: 0
+    # Earnings exceed the childless phase-in cap and precede phase-out.
+    eitc: 664
+    income_tax_refundable_credits: 664
+    income_tax: -664
+    income_tax_chapter_1: 0
+
+- name: Abolishing federal income tax also abolishes chapter 1 liability
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    gov.contrib.ubi_center.flat_tax.abolish_federal_income_tax: true
+    filing_status: SINGLE
+    income_tax_before_credits: 20_000
+    income_tax_capped_non_refundable_credits: 500
+    recapture_of_investment_credit: 200
+    qualified_retirement_penalty: 300
+    niit_magi: 224_000
+    net_investment_income: 190_000
+    unreported_payroll_tax: 250
+  output:
+    # NIIT remains nonzero under this switch, so it cannot simply be
+    # subtracted from the already abolished income tax measure.
+    net_investment_income_tax: 912
+    income_tax_before_refundable_credits: 0
+    income_tax_chapter_1: 0