Fix federal non-refundable CTC calculations

[martinholmer]

The calculation of the federal non-refundable Child Tax Credit (CTC) is incorrect because in some cases it produces an amount that exceeds the income tax before credits amount. This, of course, is a bug by definition: a non-refundable credit can never exceed the income tax liability before credits.

Here is a simple test case that illustrates the problem:

- name: Single Texan with three children and low salary as only income.
  absolute_error_margin: 0.01
  period: 2022
  input:
    people:
      person1:
        age: 39
        employment_income: 30_000
      person2:
        age: 15
      person3:
        age: 14
      person4:
        age: 11
    spm_units:
      spm_unit:
        members: [person1, person2, person3, person4]
    tax_units:
      tax_unit:
        members: [person1, person2, person3, person4]
    households:
      household:
        members: [person1, person2, person3, person4]
        state_code: TX
  output:  # expected values from online TAXSIM-35
    income_tax_before_credits: 1_060
    non_refundable_ctc: 1_060

##############################################################################
# ABOVE TEST IS IN A FILE NAMED ctcbug.yaml
# TEST ENVIRONMENT:
#   % pip list | grep policyengine
#   policyengine-core             2.21.8
#   policyengine-us               1.34.1
# RESULTS FROM RUNNING THIS TEST ARE AS FOLLOWS:
#
#=============================== FAILURES ===================================
#_____________________________ test session _________________________________
#/Users/mrh/work/.../ctcbug.yaml:
#  Test 'Single Texan with three children and low salary as only income.':
#    non_refundable_ctc@2022: [1875.] differs from 1060.0
#                             with an absolute margin [815.] > 0.01
#======================= short test summary info ============================
#FAILED ctcbug.yaml::
#========================== 1 failed in 3.89s ===============================

[PavelMakarchuk]

@MaxGhenis curious your thoughts here - I do not think that this is a bug but more of a structural questions

We do compute a non refundable CTC amount of $1,875 which is then limited in the income_tax_capped_non_refundable_credits - if included in the test above this variable returns a value of $1,060 - and this is ultimately the value that will affect the net income calculation

To get insights into the applicable CTC amount we also have the ctc_limiting_tax_liability variable which also returns $1,060

However since Martin is raising this issue it might be worth discussing if this could be misleading for developers who are looking into individual non refundable credit computation files

[martinholmer]

@PavelMakarchuk said in issue #4800:

I do not think that this is a bug

I don't understand how you can say that when the non_refundable_ctc variable is defined as "The portion of the Child Tax Credit that is not refundable."

https://github.com/PolicyEngine/policyengine-us/blob/6cb1140cd768ad97be2483efdfcca6c3d7bc210f/policyengine_us/variables/gov/irs/credits/ctc/non_refundable_ctc.py#L4-L14

That is an unambiguous definition of the variable. And the value of that variable is not always correct.

[PavelMakarchuk]

@PavelMakarchuk said in issue #4800:

I do not think that this is a bug

I don't understand how you can say that when the non_refundable_ctc variable is defined as "The portion of the Child Tax Credit that is not refundable."

https://github.com/PolicyEngine/policyengine-us/blob/6cb1140cd768ad97be2483efdfcca6c3d7bc210f/policyengine_us/variables/gov/irs/credits/ctc/non_refundable_ctc.py#L4-L14

That is an unambiguous definition of the variable. And the value of that variable is not always correct.

Perhaps changing the variable name to maximum_non_refundable_ctc would be more descriptive but this would lead to a structural change of naming all non refundable credit variables maximum_x as we do not cap any non ref. credits at taxes until later in the computation tree

[martinholmer]

@PavelMakarchuk said in issue #4800:

Perhaps changing the variable name to maximum_non_refundable_ctc would be more descriptive but this would lead to a structural change of naming all non refundable credit variables maximum_x as we do not cap any [nonrefundable] credits at taxes until later in the computation tree.

How is a user of PolicyEngine-US supposed to get the ACTUAL non-refundable CTC amount?

[MaxGhenis]

We can do this for the federal non-refundable CTC, but in general we don't intend to track the sequence of non-refundable credits (as opposed to capping the sum at tax before credits) unless a use case arises.

[martinholmer]

@MaxGhenis said in issue #4800:

We can do this for the federal non-refundable CTC

Good! That will certainly help the developers working in the policyengine-taxsim repository, who seem to be confused in the same way I was about the CTC variables.