TY  - JOUR
AU  - Poterba,James M.
AU  - Sinai,Todd M.
TI  - Income Tax Provisions Affecting Owner-Occupied Housing: Revenue Costs and Incentive Effects
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14253
PY  - 2008
Y2  - August 2008
UR  - http://www.nber.org/papers/w14253
L1  - http://www.nber.org/papers/w14253.pdf
N1  - Author contact info:
James M. Poterba
Department of Economics
MIT, E52-350
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/253-6673
Fax: 617/258-7804
E-Mail: poterba@nber.org

Todd M. Sinai
University of Pennsylvania, Wharton School
1465 Steinberg Hall - Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
Tel: 215/898-5390
Fax: 215/573-2220
E-Mail: sinai@wharton.upenn.edu
M1  - published as James M. Poterba, Todd Sinai. "Revenue Costs and Incentive Effects of the Mortgage Interest Deduction for Owner-Occupied Housing," in James M. Poterba, organizer, "Economic Analysis of Tax Expenditures" National Tax Journal, (National Tax Association), Vol. 64, no. 2, part 2 (2011)

M3  - presented at "Economics of Tax Expenditures Conference", March 27-29, 2008
AB  - The 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.
ER  -