Tag Archives | Housing tax subsidies

Revenue Costs and Incentive Effects of the Mortgage Interest Deduction for Owner-Occupied Housing

We analyze how changes in the income tax deduction for mortgage interest would affect loan-to-value ratios on owner-occupied homes, the distribution of income tax liabilities, and the consumption of housing services. Using the 2004 Survey of Consumer Finances, we estimate that repealing the mortgage interest deduction in 2003 would have raised federal and state income tax revenues by $72.4 billion in the absence of any household portfolio adjustments, but by only $58.5 billion if homeowners drew down financial assets to pay down their mortgage debt.

Revenue Costs and Incentive Effects of the Mortgage Interest Deduction for Owner-Occupied Housing with James Poterba, National Tax Journal vol. 64, number 2 (June 2011), 531-564 (PDF)

Tax Expenditures for Owner-Occupied Housing: Deductions for Property Taxes and Mortgage Interest and the Exclusion of Imputed Rental Income

Federal income tax policy affects the cost of homeownership for many households. Popular discussions of the favorable tax treatment of owner occupied housing usually focus on the tax-deductibility of mortgage interest and property tax payments, as well as the specialized tax rules that affect housing capital gains. Academic discussions, in contrast, emphasize the exclusion of the imputed rental income on owner-occupied housing as the key tax benefit for homeowners. This paper summarizes the current distribution of the tax benefits associated with the mortgage interest and property tax deductions. It contrasts them with the distribution of tax benefits associated with the current tax regime for imputed rental income relative to one which taxed homeowners as if they were landlords. It also reports how removing either deduction, or taxing homeowners as landlords, would affect the user cost of owner-occupied housing.

Tax Expenditures for Owner-Occupied Housing: Deductions for Property Taxes and Mortgage Interest and the Exclusion of Imputed Rental Income with James Poterba, American Economic Review Papers and Proceedings, vol. 96, number 2 (May 2008) (PDF)

Urban Housing Demand

Urban Housing Demand , The New Palgrave Dictionary of Economics, Second Edition, Steven Durlauf and Lawrence Blume, eds. (2008, Palgrave MacMillan) (PDF)

The (Un)Changing Geographical Distribution of Housing Tax Benefits: 1980 to 2000

Even though the top marginal income tax rate has fallen substantially and the tax code has become less progressive since 1979, the tax benefit to homeowners was virtually unchanged between 1979-1989, and then rose substantially between 1989-1999. Using tract-level data from the 1980, 1990, and 2000 censuses, we estimate how the income tax-related benefits to owner-occupiers are distributed spatially across the United States. Geographically, gross program benefits have been and remain very spatially targeted. At the metropolitan area level, tax benefits are spatially targeted, with a spatial skewness that is increasing over time. In 1979, owners in the top 20 highest subsidy areas received from 2.7 to 8.0 times the subsidy reaped by owners in the bottom 20 areas. By 1999, owners in the top 20 areas received from 3.4 to 17.1 times more benefits than owners in any of the 20 lowest recipient areas. Despite the increasing skewness, the top subsidy recipient areas tend to persist over time. In particular, the very high benefit per owner areas are heavily concentrated in California and the New York City to Boston corridor, with California owners alone receiving between 19 and 22 percent of the national aggregate gross benefits. While tax rates are somewhat higher in these places, it is high and rising house prices which appear most responsible for the large and increasing skewness in the spatial distribution of benefits.

The (Un)Changing Geographical Distribution of Housing Tax Benefits: 1980 to 2000 with Joseph Gyourko, Tax Policy and the Economy Volume 18, James Poterba, ed. (2004, Cambridge: MIT Press), pp. 175-208 [Revised version of NBER w10322, February 2004] (PDF)

The Spatial Distribution of Housing-Related Ordinary Income Tax Benefits

We estimate how tax subsidies to owner-occupied housing are distributed spatially across the United States and find striking skewness. At the state level, the mean tax benefit per owned unit in 1990 ranged from $917 in South Dakota to $10,718 in Hawaii. The dispersion is slightly greater when benefit flows are measured at the metropolitan-area level. Even assuming the subsidies are funded in an income progressivity-neutral manner, a relatively few metro areas, primarily in California and the New York–Boston corridor, are shown to gain considerably while the vast majority of areas have relatively small gains or losses.

The Spatial Distribution of Housing-Related Tax Benefits in the United States. with Joseph Gyourko, Brookings Institution Discussion_paper, July 2001. (PDF)

Chapter 5: The Spatial Distribution of Mortgage Interest Deduction Benefits Across and Within Metropolitan Areas in the United States

Chapter 5: The Spatial Distribution of Mortgage Interest Deduction Benefits Across and Within Metropolitan Areas in the United States with Joseph Gyourko, in Richard Green and Andrew Reschovsky, eds, Using Tax Policy to Increase Homeownership Among Low- and Moderate-Income Households: Final Report to the Ford Foundation, November 2001, pp. 137-186.

The Spatial Distribution of Housing-Related Tax Benefits in the United States.

Using 1990 Census tract-level data, we estimate how tax subsidies to owner-occupied housing are distributed spatially across the United States, calculating their value as the difference in taxes currently paid by home owners and the taxes owners would pay if there were no preference for investing in one’s home relative to other assets. The $164 billion national tax subsidy is highly skewed spatially with a few areas receiving large subsidies and most areas receiving small ones. If the program were self-financed on a lump sum basis, less than 20 percent of states and 10 percent of metropolitan areas would have net positive subsidies. These few metropolitan areas are situated almost exclusively along the California coast and in the Northeast from Washington, DC to Boston. At the state level, California stands out because it receives 25 percent of the national aggregate subsidy flow while being home to only 10 percent of the country’s owners. At the metropolitan area level, owners in just three large CMSAs receive over 75 percent of all positive net benefits. And within a number of the larger metropolitan areas, the top quarter of owners receives 70 percent or more of the total subsidy flowing to the metro area.

The Spatial Distribution of Housing-Related Tax Benefits in the United States. with Joseph Gyourko, Brookings Institution Discussion_paper, July 2001.