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Revenue Costs And Incentive Effects Of The Mortgage Interest Deduction For Owner-Occupied Housing

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  • Poterba, James M.
  • Sinai, Todd

Abstract

We analyze how changes in the income tax deduction for home 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.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 64 (2011)
Issue (Month): 2 (June)
Pages: 531-64

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Handle: RePEc:ntj:journl:v:64:y:2011:i:2:p:531-64

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  1. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports 218, Federal Reserve Bank of New York.
  2. David C. Ling & Gary A. McGill, 2007. "The Variation of Homeowner Tax Preferences by Income, Age and Leverage," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(4), pages 505-539, December.
  3. Joseph Gyourko & Eduardo Morales & Charles Nathanson & Edward Glaeser, 2011. "Housing Dynamics," 2011 Meeting Papers 307, Society for Economic Dynamics.
  4. Martin Gervais & Manish Pandey, 2005. "Who Cares about Mortgage Interest Deductibility?," University of Western Ontario, Economic Policy Research Institute Working Papers 20059, University of Western Ontario, Economic Policy Research Institute.
  5. Gene Amromin & Jennifer Huang & Clemens Sialm, 2006. "The Tradeoff Between Mortgage Prepayments and Tax-Deferred Retirement Savings," NBER Working Papers 12502, National Bureau of Economic Research, Inc.
  6. James M. Poterba & Todd M. Sinai, 2008. "Income Tax Provisions Affecting Owner-Occupied Housing: Revenue Costs and Incentive Effects," NBER Working Papers 14253, National Bureau of Economic Research, Inc.
  7. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
  8. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers 9807, University of Western Ontario, Department of Economics.
  9. Rosanne Altshuler & Robert Dietz, 2008. "Reconsidering Tax Expenditure Estimation: Challenges And Reforms," Departmental Working Papers 200804, Rutgers University, Department of Economics.
  10. Ling, David C. & McGill, Gary A., 1998. "Evidence on the Demand for Mortgage Debt by Owner-Occupants," Journal of Urban Economics, Elsevier, vol. 44(3), pages 391-414, November.
  11. Berkovec, James & Fullerton, Don, 1992. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 390-429, April.
  12. Altshuler, Rosanne & Dietz, Robert, 2011. "Reconsidering Tax Expenditure Estimation," National Tax Journal, National Tax Association, vol. 64(2), pages 459-89, June.
  13. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall.
  14. James Poterba & Todd Sinai, 2008. "Tax Expenditures for Owner-Occupied Housing: Deductions for Property Taxes and Mortgage Interest and the Exclusion of Imputed Rental Income," American Economic Review, American Economic Association, vol. 98(2), pages 84-89, May.
  15. Jones, Lawrence D., 1995. "Net wealth, marginal tax rates and the demand for home mortgage debt," Regional Science and Urban Economics, Elsevier, vol. 25(3), pages 297-322, June.
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