Income Tax Provisions Affecting Owner-Occupied Housing: Revenue Costs and Incentive Effects
AbstractThe mortgage interest deduction, the property tax deduction, the unique treatment of capital gains on owner-occupied homes, and the absence of taxation on imputed rent from owner-occupied homes all influence the effective cost of housing services. They also affect federal income tax revenues and the distribution of income tax liabilities. We draw on household-level data from the 2004 Survey of Consumer Finances to analyze how several potential reforms would affect incentives for housing consumption as well as the distribution of income tax burdens. Our analysis recognizes that changing the mortgage interest deduction would induce changes in household financial behavior. We estimate that repealing the mortgage interest deduction in 2003 would have raised income tax revenues by $72.4 billion in the absence of any portfolio adjustments, but by only $61.9 billion if homeowners responded by drawing down a limited set of financial assets to partially replace their mortgage debt. The revenue effects of changing the property tax deduction similarly depend on how state and local governments alter their mix of revenue instruments in response to federal tax reform. Our results underscore the importance of recognizing behavioral responses when calculating the revenue costs of income tax provisions relating to owner-occupied housing.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14253.
Date of creation: Aug 2008
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-21 (All new papers)
- NEP-PBE-2008-08-21 (Public Economics)
- NEP-PUB-2008-08-21 (Public Finance)
- NEP-URE-2008-08-21 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rosanne Altshuler & Robert Dietz, 2008. "Reconsidering Tax Expenditure Estimation: Challenges And Reforms," Departmental Working Papers 200804, Rutgers University, Department of Economics.
- James M. Poterba, 1992.
"Taxation and Housing: Old Questions, New Answers,"
NBER Working Papers
3963, National Bureau of Economic Research, Inc.
- Martin Feldstein & Gilbert Metcalf, 1987.
"The Effect of Federal Tax Deductibility on State and Local Taxes and Spending,"
NBER Working Papers
1791, National Bureau of Economic Research, Inc.
- Feldstein, Martin S & Metcalf, Gilbert E, 1987. "The Effect of Federal Tax Deductibility on State and Local Taxes and Spending," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 710-36, August.
- Metcalf, Gilbert & Feldstein, Martin, 1987. "The Effect of Federal Tax Deductibility on State and Local Taxes and Spending," Scholarly Articles 2766699, Harvard University Department of Economics.
- Anderson, John E. & Clemens, Jeffrey & Hanson, Andrew, 2007. "Capping the Mortgage Interest Deduction," National Tax Journal, National Tax Association, vol. 60(4), pages 769-85, December .
- Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005.
"Assessing High House Prices: Bubbles, Fundamentals and Misperceptions,"
Journal of Economic Perspectives,
American Economic Association, vol. 19(4), pages 67-92, Fall.
- Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports 218, Federal Reserve Bank of New York.
- Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions," NBER Working Papers 11643, National Bureau of Economic Research, Inc.
- Follain, James R. & Ling, David C., 1991. "The Federal Tax Subsidy to Housing and the Reduced Value of the Mortgage Interest Deduction," National Tax Journal, National Tax Association, vol. 44(2), pages 147-68, June Cita.
- Martin Gervais, 1998.
"Housing Taxation and Capital Accumulation,"
UWO Department of Economics Working Papers
9807, University of Western Ontario, Department of Economics.
- Robert M. Dunsky & James R. Follain, 2000. "Tax-Induced Portfolio Reshuffling: The Case of the Mortgage Interest Deduction," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(4), pages 683-718.
- 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.
- 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.
- Todd Sinai & Joseph Gyourko, 2004. "The (Un)changing Geographical Distribution of Housing Tax Benefits: 1980 to 2000," NBER Working Papers 10322, National Bureau of Economic Research, Inc.
- Martin Gervais & Manish Pandey, 2008.
"Who Cares About Mortgage Interest Deductibility?,"
Canadian Public Policy,
University of Toronto Press, vol. 34(1), pages 1-24, March.
- 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.
- 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.
- Sang-Wook Stanley Cho & Johanna Francis, 2008.
"Tax Treatment of Owner Occupied Housing and Wealth Inequality,"
Fordham Economics Discussion Paper Series
dp2008-17, Fordham University, Department of Economics.
- Cho, Sang-Wook (Stanley) & Francis, Johanna L., 2011. "Tax treatment of owner occupied housing and wealth inequality," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 42-60, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.