Update tip income calibration target from stale 2018 W-2 data

[MaxGhenis]

Summary

The tip income calibration target is $53.2B, derived from 2018 IRS W-2 Box 7 (Social Security tips) of $38.3B multiplied by a 1.4 wage growth factor. This should be updated.

Problems with current target

1. Stale base year: Uses 2018 ($38.3B) when 2019 data is available ($42.4B — 11% higher)
2. Crude growth factor: The 1.4× multiplier was a rough estimate; actual wage growth from 2019→2026 is ~38% based on BLS average hourly earnings (FRED CES0500000003)
3. 2020 is the latest IRS W-2 release but is a COVID year ($26.8B — depressed 37%), so 2019 is the right base

IRS W-2 Box 7 data (Table 4.B, amounts in thousands)

Year	Box 7 (SS Tips)	Box 8 (Allocated Tips)	Notes
2018	$38,316,190K ($38.3B)	—	Current PE base
2019	$42,379,547K ($42.4B)	$90,704K ($91M)	Pre-COVID, recommended base
2020	$26,786,522K ($26.8B)	$72,345K ($72M)	COVID year, do not use

Source: IRS SOI W-2 Statistics, Table 4.B

Recommended target: ~$59B

Option A (recommended): 2019 Box 7 ($42.4B) × 1.38 (wage growth) = $58.6B

Option	Base	Growth factor	2026 target
A (recommended)	2019 $42.4B	×1.38 (wage growth only)	$58.6B
B	2019 $42.4B	×1.52 (+10% tip norm increase)	$64.5B
C	2019 $42.4B	×1.66 (+20% norms + reporting)	$70.3B
Current PE	2018 $38.3B	×1.40	$53.2B

Option A is conservative — no behavioral assumptions, just clean wage growth uprating from the latest pre-COVID IRS data.

Expected impact

• Current PE microsim produces $54.2B in tip income → $4.7B revenue cost for "no tax on tips"
• Updated target of ~$59B would push the revenue estimate toward ~$5.2B
• JCT scores the provision at $10.0B for FY2026, so this closes part of the gap
• The remaining gap is likely driven by occupation-based imputation (Add occupation/industry as predictors in tip income imputation model #526) and behavioral reporting response (Consider tip reporting behavioral response in post-OBBB calibration policyengine-us#7355)

Code locations to update

• policyengine_us_data/storage/calibration_targets/pull_hardcoded_targets.py (line ~30)
• policyengine_us_data/calibration/etl_national_targets.py (line ~196)
• policyengine_us_data/utils/loss.py (line ~38, if still used)

Suggested change

# Old
"tip_income": 38e9 * 1.4,  # $53.2B

# New
# 2019 W-2 Box 7 (Social Security tips): $42.4B
# Uprated by 38% cumulative wage growth (BLS AHE) to 2026
"tip_income": 42.4e9 * 1.38,  # $58.5B