Deduction. A reduction in taxable income for certain expenses. Some deductions such as that for contributions to an Individual Retirement Account (IRA) reduce AGI. Most deductions, such as those for home mortgage interest and state and local taxes, are only available to those who itemize deductions. Most taxpayers choose not to itemize, claiming the standard deduction, because it provides a greater tax benefit. Because marginal tax rates increase with taxable income, deductions benefit high-income more than low-income taxpayers. Deductions cannot reduce taxable income below zero.
Deficit-Neutral. A term applied to legislative bills or proposals that pay for themselves over some budget period—for instance, by having in a single proposal tax increases that fully offset in value the proposed expenditure increases. (See also revenue-neutral.)
Defined Benefit Retirement Plans. A retirement plan that guarantees a specified retirement payment at a certain age and after a specified period of service.
Defined Contribution Retirement Plans. A retirement program in which each employee has an individual account that accumulates employee contributions and/or employer contributions and investment return. (Also known as individual account plans.)
Dependency Ratio. The portion of the population that is too old or too young to work.
Dependent. An individual supported by a tax filer for over half of a calendar year. The tax law stipulates five tests to determine whether a filer may claim someone as a dependent and thus qualify for an exemption: a relationship test, a joint return test, a citizen-or-resident test, an income test, and a support test. In 2003, a tax filer could reduce taxable income by $3,050 for each dependent exemption. That amount is indexed for inflation.
Devolution. A shift in the locus of responsibility, decisionmaking, or control from a higher level of government to a lower level of government (e.g., the federal government to state or local levels of government).
Disabled-Worker Benefit. Monthly Social Security benefit paid to disabled workers younger than the normal retirement age.
Disproportionate Share Hospitals. Hospitals that serve a disproportionate number of Medicaid and uninsured patients. Also a program legislated in the early 1980s that mandated that states consider special payments to those hospitals.
Dissavings. Spending more than one's income. This deficit is financed either by cashing in current assets or borrowing.
Distribution Table. Table detailing how a proposal or policy affects the distribution of tax burdens by income, demographics, or other characteristics.
Dividend. Profits distributed by a corporation to its shareholders. Most dividends are taxed at the same lower tax rates that apply to capital gains.
Downcoding. The practice by medical providers, often hospitals, of incorrectly classifying a procedure as being less complex than it actually is. Providers do this to reduce administrative hassle and their risk of being sanctioned by Medicare for engaging in upcoding. (See Upcoding.)
Drug Formularies. The list of pharmaceuticals for which a health insurance plan will cover some or all of the costs. Restrictive formularies severely limit the number of drugs covered in each therapeutic class and may offer reimbursement only for generic drugs. Open formularies cover all drugs, generic and brand name.
Dually Entitled Beneficiary. Someone who receives Social Security benefits as both a retired worker and a spouse or widow(er); the retired worker benefit is paid in full but the spouse or survivor benefit paid equals only the amount by which it exceeds the retired worker benefit.
Dynamic Microsimulation Models. Strategy conceived in 1957 by Guy Orcutt; models the interacting behavior of decision makers (such as individuals, families, and firms) within a larger system by taking a base population sample of decisionmakers and aging the population forward.
Dynamic Simulation. Computer simulations of how individuals, households, or firms alter their work, saving, investment, or consumption behavior in response to changes in a law or policy, and the effect of those feedback effects on tax revenues.
DYNASIM (Dynamic Simulation of Income Model). A microsimulation model developed by the Urban Institute to gauge the effects of social and economic trends that will shape the conditions facing future generations of retirees and their benefit needs and to project the characteristics of future retirees as individuals.
