VA state dataset overestimates high-income tax units by ~4x (impacts HB979 scoring)

[PavelMakarchuk]

Summary

While scoring Virginia HB979 (new 8% and 10% income tax brackets on high earners), we found that the Enhanced CPS state dataset for Virginia significantly overstates the number of high-income tax units, which inflates revenue estimates from high-earner tax provisions.

Context: state-legislative-tracker PR #70

The discrepancy

Metric	PE (Enhanced CPS)	Actual (IRS/VA Tax Data)	Ratio
Tax units with taxable income >= $1M	56,413 (1.21% of filers)	13,170 (0.32% of filers)	4.3x overcount
Total weighted tax units	4,656,670	~4,063,070	1.15x

Source for actual data: Cardinal News citing VA tax return data (13,170 out of 4,063,070 returns report income over $1M).

Granular income distribution from PE's VA dataset (2027 projection)

Taxable Income Range	Raw Records	Weighted Tax Units	Total Taxable Income	Avg Taxable Income
$0 - $3K	33,456	1,652,437	$202M	$122
$3K - $5K	1,628	75,414	$289M	$3,836
$5K - $17K	8,716	418,624	$4.6B	$10,933
$17K - $600K	54,325	2,440,869	$217.6B	$89,149
$600K - $1M	250	12,914	$10.2B	$789,300
>$1M	1,470	56,413	$168.5B	$2,987,044

Key observations:

• Only 1,470 raw CPS records represent 56,413 weighted millionaire tax units (average weight ~38x)
• These 1,470 records carry $168.5 billion in total taxable income
• The $600K-$1M range has only 250 raw records weighted to 12,914 units

Revenue impact

This overcount directly inflates revenue estimates for any policy targeting high earners:

Reform Component	PE Estimate	Back-of-envelope (scaled to actual filer counts)
8% bracket ($600K-$1M, +2.25pp)	+$563M	~$130M
10% bracket (>$1M, +4.25pp)	+$4,764M	~$1,100M
Total bracket revenue	+$5,353M	~$1,230M

The scaling ratio (13,170 / 56,413 = 0.23) is a rough adjustment -- the true correction depends on whether PE is overweighting existing high-income records vs imputing income that doesn't exist. But the magnitude of the discrepancy (4.3x) suggests this is a material data quality issue for high-income policy analysis.

Marginal income in each new bracket

For the HB979 reform specifically:

Bracket	Total marginal income in bracket (all filers)	Additional tax (rate increase)
$600K-$1M (+2.25pp)	$25.0B	$563M
>$1M (+4.25pp)	$112.1B	$4,764M

The >$1M bracket captures $112B in marginal income. If the actual figure is closer to $112B * 0.23 = ~$26B, the revenue from this bracket drops from $4.76B to ~$1.1B.

External validation points

Source	Estimate for 10% bracket on >$1M	Notes
Del. Convirs-Fowler (bill sponsor)	~$1.7B/year	Legislator estimate, via Pilot Online
Commonwealth Institute	~$2.5B/year	Policy org estimate, via their blog
PE (Enhanced CPS)	~$4.76B/year	10% bracket component only

PE's bracket-only estimate is 1.9x to 2.8x higher than external estimates.

Questions

1. Is the high-income overcount specific to VA, or does it affect other state datasets?
2. Is this coming from the CPS weighting/imputation step, or from the state-level extraction?
3. Could we calibrate state datasets against IRS SOI data (Statistics of Income) for the high-income tail?
4. For states with known millionaire counts (from IRS or state tax agencies), could we add a post-hoc weight adjustment for the top of the distribution?

[PavelMakarchuk]

Update: Ultra-High Income Analysis Across VA, AZ, and NY

Critical finding: All three state datasets cap out at ~$6.5M

No PE state dataset has a single record above $10M in taxable income. The entire ultra-high-income tail is missing.

Threshold	VA (weighted / raw)	AZ (weighted / raw)	NY (weighted / raw)
>= $1M	56,413 / 1,470	39,305 / 851	188,834 / 4,720
>= $2M	48,750 / 1,066	35,017 / 615	164,147 / 3,513
>= $5M	651 / 64	763 / 31	7,659 / 214
>= $10M	0 / 0	0 / 0	0 / 0
>= $25M	0 / 0	0 / 0	0 / 0
Max TI in dataset	~$6.43M	~$5.58M	~$6.53M

Top 20 records show hard ceiling

All three states have the same pattern — taxable income clusters in a narrow band near the maximum and then stops:

State	Highest record	Top 20 range
VA	$6,434,709	$6.08M - $6.43M
AZ	$5,576,024	$5.26M - $5.58M
NY	$6,533,518	$6.13M - $6.53M

This looks like a systematic cap in the Enhanced CPS imputation — possibly CPS top-coding propagated into the state datasets.

Comparison with actual tax return data

$1M+ filers (PE vs actual):

State	PE Dataset	IRS SOI (2022)	State Tax Agency	Overcount
VA	56,413	18,720	N/A	3.0x
AZ	39,305	14,020	12,727 (residents)	2.8-3.1x
NY	188,834	69,780	67,189 (residents) / 164,542 (all)	1.1-2.7x

$5M+ filers (PE vs actual):

State	PE Dataset	Actual	Overcount
VA	651	~2,037 (est from national ratios)	0.3x (undercount!)
AZ	763	1,424 (AZ ADOR)	0.5x (undercount!)
NY	7,659	26,686 (all) / 8,552 (residents)	0.3-0.9x (undercount!)

$10M+ filers (PE vs actual):

State	PE Dataset	Actual	Status
VA	0	~805 (est)	Completely missing
AZ	0	537 (AZ ADOR)	Completely missing
NY	0	11,636 (all) / 3,338 (residents)	Completely missing

The double distortion

The PE datasets have two simultaneous problems in the high-income tail:

1. Overcounting at $1M-$5M: Too many filers weighted into this range (2-3x actual), inflating revenue from policies targeting income in this band
2. Zero representation above ~$6.5M: The entire ultra-high tail is missing, meaning revenue from policies targeting $10M+, $25M+ income is completely uncaptured

This means:

• Bills with surcharges at $1M get overstated revenue (too many filers, too much income at $1-6M)
• Bills with surcharges at $5M+ or $10M+ get understated revenue (no filers at all above ~$6.5M)
• The net direction of error depends on where the policy threshold falls

Revenue impact on pending bills

Bill	Provision	PE error direction
VA HB979	8% at $600K, 10% at $1M	Overstated (too many $1-6M filers)
AZ HB2636	8% surcharge above $1M	Overstated (too many $1-6M, missing $10M+)
NY A05435	Increases top two brackets	Direction unclear (overcounts $1-5M but misses $10M+)
CT HB05117	4%+ on income > $1M	Overstated

Actual ultra-high income data (from state agencies)

Arizona (AZ ADOR, TY 2022, residents only):

Bracket	Returns	Total Income	Tax Liability
$1M - $5M	11,303	$20.8B	$552M
$5M - $10M	887	$6.2B	$159M
$10M+	537	$18.5B	$339M

New York (NY DTF, TY 2022, all filers):

Bracket	Returns	Total NYAGI	Tax Liability
$1M - $2M	89,791	$72.3B	$3.54B
$2M - $5M	48,065	$74.5B	$4.35B
$5M - $10M	15,050	$46.0B	$2.68B
$10M+	11,636	$127.4B	$6.14B

Note that NY's $10M+ filers alone hold $127.4 billion in income and pay $6.1B in state tax — and PE has zero representation of this group.

Sources

• IRS SOI Historic Table 2
• IRS SOI Table 1.4 (Publication 1304)
• AZ Dept of Revenue - Individual Income Tax Statistics TY 2022
• NY Dept of Taxation & Finance Open Data
• NY Tax Facts - Personal Income Tax
• Cardinal News - VA tax data

[PavelMakarchuk]

Data sources used in this analysis

PE state datasets

• Downloaded via huggingface_hub from policyengine/policyengine-us-data (model repo, latest snapshot)
• Files: states/VA.h5, states/AZ.h5, states/NY.h5
• Variables extracted: {state}_taxable_income, tax_unit_weight, state_income_tax for year 2027

IRS Statistics of Income (SOI)

• Table 2 (state-level, TY 2022): Returns by state and size of AGI. Top bracket = "$1,000,000 or more"
  • https://www.irs.gov/statistics/soi-tax-stats-historic-table-2
  • Files: 22in47va.xlsx (VA), 22in03az.xlsx (AZ), 22in33ny.xlsx (NY)
• Table 1.4 (national, TY 2022): Sub-brackets within $1M+ ($1M-$1.5M, $1.5M-$2M, $2M-$5M, $5M-$10M, $10M+). National only, no state breakdowns.
  • https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-returns-complete-report-publication-1304-basic-tables-part-1

State tax agency data

• Arizona Dept of Revenue — Individual Income Tax Statistics, TY 2022 (residents only). Has $1M-$5M, $5M-$10M, $10M+ brackets with filer counts, income, and tax liability.
  • https://azdor.gov/sites/default/files/document/REPORTS_STATS_2022_ArizonaIndividualIncomeTaxStatistics.pdf (Table 1)
• New York Dept of Taxation & Finance — Personal Income Tax Filers Summary Dataset 3 (TY 2022, all filers). Has $1M-$2M, $2M-$5M, $5M-$10M, $10M+ brackets.
  • https://data.ny.gov/Government-Finance/Personal-Income-Tax-Filers-Summary-Dataset-3-State/rt8x-r6c8/data
  • Also: NY Tax Facts page (TY 2023 preliminary): https://www.tax.ny.gov/data/stats/taxfacts/personal-income-tax.htm — 86,216 millionaire filers
• Virginia Dept of Taxation — FY2024 Annual Report. Only breaks income classes up to "$100,000 and Over" (no granularity above $1M).
  • https://www.tax.virginia.gov/sites/default/files/inline-files/2024-annual-report.pdf

News / policy org sources (VA-specific)

• Cardinal News (VA actual return data: 13,170 returns above $1M out of 4,063,070 total): https://cardinalnews.org/2026/01/29/republicans-say-democrats-want-to-raise-taxes-heres-a-look-at-some-of-the-key-tax-bills-that-have-been-introduced-in-richmond/
• Commonwealth Institute (10% bracket revenue estimate ~$2.5B/yr): https://thecommonwealthinstitute.org/tci_blog/virginia-fair-share-tax-affordability/
• Del. Convirs-Fowler (10% bracket estimate ~$1.7B/yr, via Pilot Online): https://www.pilotonline.com/2026/02/05/tax-policy-bills-virginia-general-assembly/
• Thomas Jefferson Institute (confirmed no fiscal note published): https://www.thomasjeffersoninst.org/revenue-hungry-democrats-give-themselves-a-buffet-of-tax-increase-choices-for-2026/

NYC-specific

• NYC Comptroller (TY 2023, full-year residents): 34,306 millionaire filers in NYC alone (29,557 at $1M-$5M, 2,813 at $5M-$10M, 1,936 at $10M+)
  • https://comptroller.nyc.gov/reports/the-nyc-personal-income-tax-before-and-after-the-pandemic/

Other

• Empire Center (historical NY millionaire counts from IRS data: 55,100 in 2020, 75,580 in 2021): https://www.empirecenter.org/publications/nys-millionaire-share-dropped-again-in-2021-irs-data-show/
• CBC New York (~70,000 millionaire filers in 2022): https://cbcny.org/research/hidden-cost-new-yorks-shrinking-millionaire-share
• AZ Proposition 208 JLBC Fiscal Analysis (~90,000 filers above $250K in AZ): https://www.azjlbc.gov/ballot/20novi-31-2020fn730.pdf