Add S.770 section 8 investment and active income tax options

changelog.d/reform-s770-section8-investment-business-income-tax.added.md

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+Add independently enabled S.770 section 8 NII add-on and active pass-through income tax options, signed unified-base allocation, and configurable OASDI revenue transfers.

policyengine_us/parameters/gov/contrib/congress/s770/section_8/active_business/deny_nol.yaml

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+description: When the active option is enabled, add back the validated NOL deduction supplied
+  in s770_niit_nol_deduction to broadened NII before allocating the unified base. There
+  is no automatic federal section 172 deduction variable.
+values:
+  '0000-01-01': true
+metadata:
+  label: S.770 broadened NII denies NOL deduction
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: bool

policyengine_us/parameters/gov/contrib/congress/s770/section_8/active_business/in_effect.yaml

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+description: The signed additional active-business base applies if this is true, independently
+  of the NII add-on.
+values:
+  '0000-01-01': false
+metadata:
+  label: S.770 active business option in effect
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: bool

policyengine_us/parameters/gov/contrib/congress/s770/section_8/active_business/oasdi_share.yaml

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+description: In custom and all_addon transfer modes, this share of the active business
+  tax goes to OASDI.
+values:
+  '0000-01-01': 0.62
+metadata:
+  label: S.770 active business OASDI share
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: /1

policyengine_us/parameters/gov/contrib/congress/s770/section_8/active_business/rate.yaml

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+description: The active business option taxes its allocated base at this total rate.
+values:
+  '0000-01-01': 0.162
+metadata:
+  label: S.770 active business tax rate
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: /1

policyengine_us/parameters/gov/contrib/congress/s770/section_8/active_business/start_year.yaml

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+description: The active-business option starts in this tax year. Section 8(c) specifies
+  taxable years beginning after enactment; 2026 is an illustrative enactment assumption.
+values:
+  '0000-01-01': 2026
+metadata:
+  label: S.770 active business start year
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: year

policyengine_us/parameters/gov/contrib/congress/s770/section_8/nii_addon/in_effect.yaml

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+description: The NII add-on applies if this is true, independently of the active-income
+  option.
+values:
+  '0000-01-01': false
+metadata:
+  label: S.770 NII add-on in effect
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: bool

policyengine_us/parameters/gov/contrib/congress/s770/section_8/nii_addon/oasdi_share.yaml

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+description: In custom transfer mode, this share of the NII add-on goes to OASDI. The bill
+  specifies 62 percent of all resulting section 1411 tax; this component share alone does
+  not reproduce that transfer.
+values:
+  '0000-01-01': 0.62
+metadata:
+  label: S.770 NII add-on OASDI share
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: /1

policyengine_us/parameters/gov/contrib/congress/s770/section_8/nii_addon/rate.yaml

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+description: The NII option adds this rate to existing NIIT. The bill example is 16.2 percent
+  minus 3.8 percent.
+values:
+  '0000-01-01': 0.124
+metadata:
+  label: S.770 NII add-on rate
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: /1

policyengine_us/parameters/gov/contrib/congress/s770/section_8/nii_addon/start_year.yaml

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+description: The NII add-on starts in this tax year. Section 8(c) specifies taxable years
+  beginning after enactment, not a fixed year; 2026 is an illustrative enactment assumption.
+values:
+  '0000-01-01': 2026
+metadata:
+  label: S.770 NII add-on start year
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: year

policyengine_us/parameters/gov/contrib/congress/s770/section_8/transfer/bill_share.yaml

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+description: In bill transfer mode, this share of all resulting section 1411 tax goes to
+  the merged Social Security fund.
+values:
+  '0000-01-01': 0.62
+metadata:
+  label: S.770 bill OASDI transfer share
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: /1

policyengine_us/parameters/gov/contrib/congress/s770/section_8/transfer/mode.yaml

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+description: 'OASDI transfer convention: 0=custom, 1=combined_rate_share, 2=all_addon, 3=bill. Custom uses each incremental part share; combined_rate_share
+  allocates the OASDI rate over each combined rate; all_addon sends every NII add-on point
+  to OASDI and uses the active share; bill sends the bill share of the entire resulting
+  section 1411 tax, including existing NIIT. This selects transfers, not full statutory
+  category coverage.'
+values:
+  '0000-01-01': 0
+metadata:
+  label: S.770 OASDI transfer mode
+  period: year
+  unit: int
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text

policyengine_us/parameters/gov/contrib/congress/s770/section_8/transfer/oasdi_rate.yaml

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+description: In combined_rate_share mode, allocate this rate over the enabled combined
+  NII rate and active tax rate. At bill example rates the OACT convention is 12.4 divided
+  by 16.2; it differs from the bill share of 62 percent.
+values:
+  '0000-01-01': 0.124
+metadata:
+  label: S.770 OASDI rate for combined-rate allocation
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  - title: OACT 2025 coverage provisions, F8
+    href: https://www.ssa.gov/OACT/solvency/provisions_tr2025/coverage.html
+  unit: /1

policyengine_us/parameters/gov/contrib/congress/s770/section_8/transfer/start_year.yaml

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+description: OASDI transfers start in this modeled annual year. Section 9(a) appropriates
+  NIIT revenue from the first fiscal year beginning after enactment; this annual tax model
+  does not prorate fiscal-year receipts.
+values:
+  '0000-01-01': 2026
+metadata:
+  label: S.770 OASDI transfer start year
+  period: year
+  reference:
+  - title: S.770 (119th Congress), sections 8 and 9
+    href: https://www.congress.gov/bill/119th-congress/senate-bill/770/text
+  unit: year

policyengine_us/reforms/congress/s770/README.md

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+# S.770 section 8 split tax options
+
+These independently enabled options model an NII rate add-on and an additional
+active pass-through base. Both default off. Parameters are under
+`gov.contrib.congress.s770.section_8`; each part has its own `in_effect`,
+`start_year`, rate and custom OASDI share. The example rates are the proposed
+bill's 12.4 percentage-point add-on and 16.2 percent active rate. No package
+settings are encoded.
+
+## Sources and dates
+
+[S.770, 119th Congress, introduced text, sections 8–9](https://www.congress.gov/bill/119th-congress/senate-bill/770/text)
+was retrieved October 23, 2026. Section 8(a)(1) replaces 3.8 percent with 16.2
+percent. Section 8(b) broadens the investment-income definition, denies the
+section 172 NOL deduction, and excludes income actually taxed under SECA or
+FICA. Section 8(c) applies to “taxable years beginning after the date of enactment
+of this Act”. There is no statutory fixed start year. The configurable 2026
+defaults illustrate assumed enactment timing and have no effect while disabled.
+
+Section 9(a) assigns 62 percent of all section 1411 tax to a merged Social
+Security fund. Revenue appropriation starts with the first fiscal year beginning
+after enactment; assets transfer on January 1 of the first calendar year beginning
+after enactment.
+`transfer.start_year` is a separate annual modeling choice. This liability model
+does not estimate fiscal-year collection lags or prorate receipts.
+
+## Signed base and tax accounting
+
+Use the existing `niit_magi`, including its modeled estate and section 911
+adjustments, and existing filing-status thresholds. Let `X=max(MAGI−threshold,0)`,
+`N` be signed adjusted old-definition NII, and `A` the signed additional active
+base (zero if that option is off):
+
+```
+L = min(max(N + A, 0), X)
+n = min(max(N, 0), L)
+a = L - n
+tax = (existing_rate + enabled_addon_rate) * n + enabled_active_rate * a
+```
+
+Losses net before clipping. Both allocated shares are nonnegative; NII consumes
+the limit first even when its add-on rate is zero. When active inclusion is on,
+the existing 3.8 percent NIIT also uses `n`. The reform replaces
+`net_investment_income_tax` with the entire resulting liability. The two named
+component taxes are already included there and in federal income tax; adding
+them again would double count.
+
+With both options enabled, identical sources, exclusions, NOL treatment, MAGI,
+thresholds and timing, and `existing_rate + addon_rate = active_rate = .162`,
+this equals `.162 * L`
+for all signed inputs. This is a conditional liability identity, not a claim
+that the available fields implement every statutory category. For `N=−10,000`,
+`A=20,000`, `X=50,000`, the tax is $1,620. For `N=20,000`, `A=−10,000`, the
+tax is also $1,620. Active losses can therefore reduce liability relative to
+the add-on alone ($3,240 in the latter example). Activation is monotone with
+nonnegative active income, nonnegative rates and fixed signed NII/source rules,
+including exclusions and NOL treatment. Changing source exclusions can lower
+liability even when the active residual is nonnegative: removing $10,000 of
+already-SE passive income from NII with no active residual reduces existing NIIT
+from $380 to zero. Arbitrary signed active losses also defeat monotonicity.
+
+## Pass-through classification and SECA/FICA interaction
+
+The person-level total is `partnership_s_corp_income`, whose formula sums
+`s_corp_income + partnership_income`. Subtract the passive subset and gross
+already-SE active subset, then net signed results across head/spouse members.
+Dependents' income belongs to their own return. This assumes the passive and
+already-SE subsets are disjoint unless their validated intersection is supplied
+in `s770_passive_se_income`. An intersection is removed from NII too. Signed
+subsets are not independently floored. Cross-entity netting within the available
+person totals is an approximation. Nonpassive status is only a proxy for material
+participation, not a determination of each limited partner's legal status.
+
+The already-SE exclusion uses `partnership_self_employment_net_earnings`, not a
+capped OASDI base: existing SE earnings can still pay uncapped HI above that cap.
+Separately paid wages are outside distributive entity income. If supplied totals
+embed FICA-taxed amounts, use the validated `s770_active_fica_income` exclusion;
+use `s770_nii_fica_seca_income` for other covered amounts already in NII, excluding
+the separately supplied passive/SE intersection. These categories and exclusions
+must be disjoint and supported by source data; the model cannot infer overlap.
+
+For a future owners-draw reform, the `s770_draw_*` inputs are classification hooks
+and do not impose SECA themselves. The supplier must connect actual taxed amounts:
+
+* OASDI-only: exclude `s770_draw_oasdi_base / q`, where the draw base is after
+  wages, existing SE earnings and applicable cap room. Above-room profits remain
+  in `A` because no SECA applies to them.
+* Uncapped draw HI: exclude the full actual `s770_draw_gross`.
+
+Here `q=1−employer_share*(SE_OASDI_rate+SE_HI_rate)`, currently .9235, using
+existing parameters. The undrawn phase-in share and floor-rejected planned draw
+remain in `A`. The supplying reform must apply its phase-in and reporting floor
+and provide the actual floor-accepted draw and taxed base; an undrawn or
+floor-rejected draw supplies zero for both hooks, including when HI is selected.
+These hooks do not calculate the draw, phase-in or reporting floor themselves.
+No independent owners-draw policy is enabled by these hooks.
+
+## Literal-bill category audit and NOL support
+
+| Statutory category | Available treatment and limitation |
+| --- | --- |
+| Interest, dividends, annuities, royalties and rents, including ordinary-course business sources after §8(b)(1)(A) | Existing NII sources are reused. Separate ordinary-course/SECA/FICA classification, annuity and royalty completeness are not established. |
+| Trade/business income under amended §1411(c)(1)(A)(ii) | Active pass-through residual is added. All other business categories and material-participation determinations are not inferred. |
+| Net property-disposition gains, including business property after §8(b)(1)(C) | Existing capital-gain sources are reused. Full business-property gain and associated exclusion classification is unsupported. |
+| §172 deduction denial under §8(b)(2) | No federal §172 NOL deduction input/formula exists in the baseline NII source list. Indiana NOL variables are state-specific. |
+| Items actually taxed by §1401 or §3101 | Already-SE fields and explicit validated overlap/FICA/draw hooks provide exclusions, not a complete statutory source classifier. |
+
+`s770_niit_nol_deduction` is an explicit TaxUnit input for a validated deduction
+**already subtracted from supplied NII**. When active inclusion and `deny_nol`
+are on, it is added back to `N` before unified allocation, changing broadened NII
+and the existing NIIT component too. Do not supply an AGI-only deduction or treat
+ordinary business losses as an NOL deduction. Baseline formulas deduct no federal
+NOL from NII, so the default input is zero. Complete literal-bill coverage needs
+a validated federal deduction/data route and the missing category classification;
+neither a zero input nor matching rates/transfers establishes that coverage.
+
+## OASDI transfers
+
+Transfers are separate from liability. `transfer.mode` selects:
+
+| Mode | Existing NIIT | NII add-on | Active tax |
+| --- | --- | --- | --- |
+| `0` = `custom` (default) | 0 | `nii_addon.oasdi_share` | `active_business.oasdi_share` |
+| `1` = `combined_rate_share` | OASDI rate / combined NII rate | Same combined share | OASDI rate / active rate |
+| `2` = `all_addon` | 0 | 100% | `active_business.oasdi_share` |
+| `3` = `bill` | `transfer.bill_share` | Same bill share | Same bill share |
+
+The mode parameter uses integer codes because core does not support string
+parameter scalars.
+
+The [OACT 2025 F8 description](https://www.ssa.gov/OACT/solvency/provisions_tr2025/coverage.html)
+allocates the active tax attributable to 12.4 of its 16.2 percentage points to
+OASDI. That convention is approximately 76.5432 percent, distinct from the
+bill's 62 percent. Here it is also available for the combined NII rate as a
+custom transfer convention. A combined-rate share requires an OASDI rate no
+larger than each positive tax rate to which it applies; a zero tax has zero
+transfer. When the NII add-on is off or its rate is zero, this custom mode
+transfers no existing NIIT, while the active transfer remains independent.
+`bill` selects the bill's **transfer rule**, not unsupported category
+coverage. Custom part shares default to .62; custom mode does not transfer the
+existing 3.8 percent component. Bill mode does, through the separately reported
+`s770_existing_niit_revenue_oasdi`. All transfers are zero when both options are
+off or before the transfer start year.
+
+`s770_nii_addon_revenue_oasdi`, `s770_active_business_income_revenue_oasdi`, and
+`s770_existing_niit_revenue_oasdi` sum to `s770_revenue_oasdi`. Each is its selected
+mode's share times the corresponding tax. Aggregate each TaxUnit once alongside
+`tob_revenue_oasdi`. Liability equivalence does not establish allocation equivalence.
+
+## Scoring-data limitation
+
+The certified pre-repair artifact forces `s_corp_income` to zero, puts combined
+income carrying passive mass in `partnership_income`, and omits
+`passive_partnership_s_corp_income` (which therefore defaults to zero). The active
+formula runs on those fields, but (b) overstates active income while (a)
+understates NII because passive pass-through income is missing. Microcosm #1251
+repairs total/passive fields; #1261 splits the entities. Scoring remains
+provisional until the selected artifact actually contains both repairs and its
+stored fields are checked. No population effects are asserted here.
+
+## Test structure
+
+The YAML examples are grouped by reform configuration across four variable-named
+files. Each file stays within the existing five-combination memory budget;
+the Congress batcher can therefore release cached reform models between files.
+Keep that grouping when adding cases rather than combining the files. Python
+properties exercise the vector helpers, with one shared household simulation
+checking dated registration, source aggregation and revenue-variable integration.

policyengine_us/reforms/congress/s770/__init__.py

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+from .section_8 import create_s770_section_8_reform