Federal CTC expansion reduces MA state tax by triggering itemization

ma_ctc_effect_executed_final.ipynb

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   "cell_type": "markdown",
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   "source": [
    "# Federal CTC Expansion Reduces MA State Tax\n",
    "\n",
    "This notebook demonstrates how federal CTC expansion reduces Massachusetts state tax for household 4428 (tax unit 442801)."
   ]
  },
  {
   "cell_type": "code",
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   "id": "2",
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     "shell.execute_reply": "2025-07-26T04:05:33.259369Z"
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   "outputs": [],
   "source": [
    "from policyengine_us import Microsimulation\n",
    "from policyengine_us.model_api import *\n",
    "import numpy as np\n",
    "\n",
    "DATASET = \"hf://policyengine/policyengine-us-data/enhanced_cps_2024.h5\"\n",
    "YEAR = 2026\n",
    "TAX_UNIT_ID = 442801"
   ]
  },
  {
   "cell_type": "markdown",
   "id": "3",
   "metadata": {},
   "source": [
    "## Step 1: Without CTC Expansion"
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 2,
   "id": "4",
   "metadata": {
    "execution": {
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   },
   "outputs": [
    {
     "name": "stdout",
     "output_type": "stream",
     "text": [
      "WITHOUT CTC EXPANSION:\n",
      "  Federal itemizes: False\n",
      "  MA state tax: $-4,409.01\n",
      "  MA Part B exemption: $12,800.00\n"
     ]
    }
   ],
   "source": [
    "# Reform stack WITHOUT CTC\n",
    "reform_no_ctc = Reform.from_dict({\n",
    "    \"gov.irs.income.bracket.rates.2\": {\"2026-01-01\": 0.15},\n",
    "    \"gov.irs.income.bracket.rates.3\": {\"2026-01-01\": 0.25},\n",
    "    \"gov.irs.income.bracket.rates.4\": {\"2026-01-01\": 0.28},\n",
    "    \"gov.irs.deductions.standard.amount.JOINT\": {\"2026-01-01\": 48900},\n",
    "    \"gov.irs.income.exemption.amount\": {\"2026-01-01\": 0},\n",
    "}, country_id=\"us\")\n",
    "\n",
    "sim_no_ctc = Microsimulation(reform=reform_no_ctc, dataset=DATASET)\n",
    "\n",
    "# Find our tax unit\n",
    "tax_unit_ids = sim_no_ctc.calculate(\"tax_unit_id\", period=YEAR).values\n",
    "tu_idx = np.where(tax_unit_ids == TAX_UNIT_ID)[0][0]\n",
    "\n",
    "itemizes_no_ctc = bool(sim_no_ctc.calculate('tax_unit_itemizes', YEAR).values[tu_idx])\n",
    "ma_tax_no_ctc = sim_no_ctc.calculate('ma_income_tax', YEAR).values[tu_idx]\n",
    "ma_exemption_no_ctc = sim_no_ctc.calculate('ma_part_b_taxable_income_exemption', YEAR).values[tu_idx]\n",
    "\n",
    "print(\"WITHOUT CTC EXPANSION:\")\n",
    "print(f\"  Federal itemizes: {itemizes_no_ctc}\")\n",
    "print(f\"  MA state tax: ${ma_tax_no_ctc:,.2f}\")\n",
    "print(f\"  MA Part B exemption: ${ma_exemption_no_ctc:,.2f}\")"
   ]
  },
  {
   "cell_type": "markdown",
   "id": "5",
   "metadata": {},
   "source": [
    "## Step 2: With CTC Expansion"
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 3,
   "id": "6",
   "metadata": {
    "execution": {
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   "outputs": [
    {
     "name": "stdout",
     "output_type": "stream",
     "text": [
      "WITH CTC EXPANSION:\n",
      "  Federal itemizes: True\n",
      "  MA state tax: $-4,465.42\n",
      "  MA Part B exemption: $13,928.17\n"
     ]
    }
   ],
   "source": [
    "# Add CTC expansion\n",
    "reform_with_ctc = Reform.from_dict({\n",
    "    \"gov.irs.income.bracket.rates.2\": {\"2026-01-01\": 0.15},\n",
    "    \"gov.irs.income.bracket.rates.3\": {\"2026-01-01\": 0.25},\n",
    "    \"gov.irs.income.bracket.rates.4\": {\"2026-01-01\": 0.28},\n",
    "    \"gov.irs.deductions.standard.amount.JOINT\": {\"2026-01-01\": 48900},\n",
    "    \"gov.irs.income.exemption.amount\": {\"2026-01-01\": 0},\n",
    "    # CTC expansion parameters\n",
    "    \"gov.contrib.reconciliation.ctc.in_effect\": {\"2026-01-01\": True},\n",
    "    \"gov.irs.credits.ctc.amount.base[0].amount\": {\"2026-01-01\": 2200},\n",
    "}, country_id=\"us\")\n",
    "\n",
    "sim_with_ctc = Microsimulation(reform=reform_with_ctc, dataset=DATASET)\n",
    "\n",
    "itemizes_with_ctc = bool(sim_with_ctc.calculate('tax_unit_itemizes', YEAR).values[tu_idx])\n",
    "ma_tax_with_ctc = sim_with_ctc.calculate('ma_income_tax', YEAR).values[tu_idx]\n",
    "ma_exemption_with_ctc = sim_with_ctc.calculate('ma_part_b_taxable_income_exemption', YEAR).values[tu_idx]\n",
    "\n",
    "print(\"WITH CTC EXPANSION:\")\n",
    "print(f\"  Federal itemizes: {itemizes_with_ctc}\")\n",
    "print(f\"  MA state tax: ${ma_tax_with_ctc:,.2f}\")\n",
    "print(f\"  MA Part B exemption: ${ma_exemption_with_ctc:,.2f}\")"
   ]
  },
  {
   "cell_type": "markdown",
   "id": "7",
   "metadata": {},
   "source": [
    "## Step 3: Analysis"
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 4,
   "id": "8",
   "metadata": {
    "execution": {
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    }
   },
   "outputs": [
    {
     "name": "stdout",
     "output_type": "stream",
     "text": [
      "IMPACT OF FEDERAL CTC EXPANSION ON MA STATE TAX:\n",
      "  MA state tax reduction: $56.41\n",
      "  MA Part B exemption increase: $1,128.17\n",
      "\n",
      "MECHANISM:\n",
      "1. CTC expansion triggers federal itemization: True → True\n",
      "2. MA allows itemizers to claim medical expense deduction in Part B exemption\n",
      "3. Medical expense deduction: $1,128.17\n",
      "4. MA tax rate: 5%\n",
      "5. Tax savings: $1,128.17 × 5% = $56.41\n",
      "\n",
      "Federal tax comparison (with CTC):\n",
      "  If itemizing: $-11,554.11\n",
      "  If standard deduction: $-11,554.11\n",
      "  Difference: $0.00\n",
      "  → Federal tax is essentially the same either way\n"
     ]
    }
   ],
   "source": [
    "# Calculate the impact\n",
    "ma_tax_change = ma_tax_with_ctc - ma_tax_no_ctc\n",
    "exemption_change = ma_exemption_with_ctc - ma_exemption_no_ctc\n",
    "\n",
    "print(\"IMPACT OF FEDERAL CTC EXPANSION ON MA STATE TAX:\")\n",
    "print(f\"  MA state tax reduction: ${-ma_tax_change:,.2f}\")\n",
    "print(f\"  MA Part B exemption increase: ${exemption_change:,.2f}\")\n",
    "\n",
    "print(f\"\\nMECHANISM:\")\n",
    "print(f\"1. CTC expansion triggers federal itemization: {not itemizes_no_ctc} → {itemizes_with_ctc}\")\n",
    "print(f\"2. MA allows itemizers to claim medical expense deduction in Part B exemption\")\n",
    "\n",
    "# Show medical expense deduction\n",
    "med_expense = sim_with_ctc.calculate('medical_expense_deduction', YEAR).values[tu_idx]\n",
    "print(f\"3. Medical expense deduction: ${med_expense:,.2f}\")\n",
    "print(f\"4. MA tax rate: 5%\")\n",
    "print(f\"5. Tax savings: ${exemption_change:,.2f} × 5% = ${exemption_change * 0.05:,.2f}\")\n",
    "\n",
    "# Verify federal tax is same either way\n",
    "fed_tax_item = sim_with_ctc.calculate('tax_liability_if_itemizing', YEAR).values[tu_idx]\n",
    "fed_tax_std = sim_with_ctc.calculate('tax_liability_if_not_itemizing', YEAR).values[tu_idx]\n",
    "print(f\"\\nFederal tax comparison (with CTC):\")\n",
    "print(f\"  If itemizing: ${fed_tax_item:,.2f}\")\n",
    "print(f\"  If standard deduction: ${fed_tax_std:,.2f}\")\n",
    "print(f\"  Difference: ${abs(fed_tax_item - fed_tax_std):,.2f}\")\n",
    "print(f\"  → Federal tax is essentially the same either way\")"
   ]
  }
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