Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Eliminating or curtailing mortgage interest deduction would have modest long-run effects on economy, Rice University study finds

17.01.2013
Eliminating or curtailing the mortgage interest deduction (MID) would initially result in declines in housing prices and investment but would have only modest aggregate macroeconomic effects in the long run, according to a new paper from Rice University’s Baker Institute for Public Policy.
The MID is the second-largest individual income tax expenditure, according to the congressional Joint Committee on Taxation. Given the severity of the fiscal problems currently faced by the U.S., many recent tax reform proposals have included measures that would curtail or eliminate the home MID.

“The MID is, of course, an extremely popular and thus highly politically sensitive provision,” said John Diamond, the Edward A. and Hermena Hancock Kelly Fellow in Public Finance at the Baker Institute. “It was one of the few provisions that was deemed to be untouchable during the deliberations preceding enactment of the landmark Tax Reform Act of 1986, a highly successful effort at fundamental tax reform that is widely believed to be the most sweeping reform of the income tax since its enactment.” Diamond co-authored the paper with George Zodrow, the university’s Allyn R. and Gladys M. Cline Chair of Economics and a Baker Institute Rice Scholar.

The study uses a computer model developed by Diamond and Zodrow to simulate both the short-run and long-run dynamic aggregate macroeconomic effects of several tax reform plans that propose eliminating or curtailing the MID. The model is a dynamic, overlapping-generations, computable general equilibrium model of the U.S. economy.

The most dramatic reform the authors analyze is complete elimination of the MID. In this case, they find that GDP decreases slightly in the short run, due to the adjustment costs incurred in reallocating the capital stock, and increases slightly by 0.1 percent in the long run. Overall investment increases by less than 1 percent and reflects the expected reform-induced increases in investment in the nonhousing sectors and the rental housing sector, coupled with a decrease in investment in the owner-occupied housing sector, of about 6 percent initially and 3 percent in the long run. Asset values increase in the nonhousing sectors by less than 2 percent and by 3.5 percent in the rental housing sector and are coupled with a decline in the value of owner-occupied housing of roughly 4 percent.

The effects of the other two reforms analyzed — replacing the MID with a 12 percent nonrefundable credit subject to a $25,000 interest cap and limiting the MID to primary residences — are qualitatively similar but significantly smaller. For example, for the capped credit, housing investment in the owner-occupied sector declines by 2.6 percent initially and by 1.5 percent in the long run, and the value of owner-occupied housing declines by roughly 2 percent. By comparison, the effects of the far more modest reform of limiting the MID to principal residences are quite small, with investment in owner-occupied housing falling by 0.7 percent initially and by 0.4 percent in the long run, and the value of owner-occupied housing falling by only 0.5 percent.

For more information or to schedule an interview with Diamond or Zodrow, contact Jeff Falk, associate director of national media relations at Rice, at jfalk@rice.edu or 713-348-6775.

Related materials:

“The Dynamic Effects of Eliminating or Curtailing the Home Mortgage Interest Deduction,” paper: http://bakerinstitute.org/publications/TEPP-pub-DiamondZodrowHomeMortgageInterestDeduction-120712.pdf.

John Diamond bio: http://bakerinstitute.org/personnel/fellows-scholars/jdiamond.

George Zodrow bio: http://bakerinstitute.org/personnel/rice-scholars/gzodrow.

Follow Rice News and Media Relations via Twitter @RiceUNews.

Founded in 1993, the James A. Baker III Institute for Public Policy at Rice University in Houston ranks among the top 20 university-affiliated think tanks globally and top 30 think tanks in the United States. As a premier nonpartisan think tank, the institute sponsors more than 20 programs that conduct research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows and Rice University scholars. Learn more about the institute at www.bakerinstitute.org or on the institute’s blog, http://blogs.chron.com/bakerblog.

Jeff Falk | EurekAlert!
Further information:
http://www.rice.edu

More articles from Business and Finance:

nachricht Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: AchemAsia 2019 will take place in Shanghai

Moving into its fourth decade, AchemAsia is setting out for new horizons: The International Expo and Innovation Forum for Sustainable Chemical Production will take place from 21-23 May 2019 in Shanghai, China. With an updated event profile, the eleventh edition focusses on topics that are especially relevant for the Chinese process industry, putting a strong emphasis on sustainability and innovation.

Founded in 1989 as a spin-off of ACHEMA to cater to the needs of China’s then developing industry, AchemAsia has since grown into a platform where the latest...

Im Focus: First real-time test of Li-Fi utilization for the industrial Internet of Things

The BMBF-funded OWICELLS project was successfully completed with a final presentation at the BMW plant in Munich. The presentation demonstrated a Li-Fi communication with a mobile robot, while the robot carried out usual production processes (welding, moving and testing parts) in a 5x5m² production cell. The robust, optical wireless transmission is based on spatial diversity; in other words, data is sent and received simultaneously by several LEDs and several photodiodes. The system can transmit data at more than 100 Mbit/s and five milliseconds latency.

Modern production technologies in the automobile industry must become more flexible in order to fulfil individual customer requirements.

Im Focus: Sharp images with flexible fibers

An international team of scientists has discovered a new way to transfer image information through multimodal fibers with almost no distortion - even if the fiber is bent. The results of the study, to which scientist from the Leibniz-Institute of Photonic Technology Jena (Leibniz IPHT) contributed, were published on 6thJune in the highly-cited journal Physical Review Letters.

Endoscopes allow doctors to see into a patient’s body like through a keyhole. Typically, the images are transmitted via a bundle of several hundreds of optical...

Im Focus: Photoexcited graphene puzzle solved

A boost for graphene-based light detectors

Light detection and control lies at the heart of many modern device applications, such as smartphone cameras. Using graphene as a light-sensitive material for...

Im Focus: Water is not the same as water

Water molecules exist in two different forms with almost identical physical properties. For the first time, researchers have succeeded in separating the two forms to show that they can exhibit different chemical reactivities. These results were reported by researchers from the University of Basel and their colleagues in Hamburg in the scientific journal Nature Communications.

From a chemical perspective, water is a molecule in which a single oxygen atom is linked to two hydrogen atoms. It is less well known that water exists in two...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Munich conference on asteroid detection, tracking and defense

13.06.2018 | Event News

2nd International Baltic Earth Conference in Denmark: “The Baltic Sea region in Transition”

08.06.2018 | Event News

ISEKI_Food 2018: Conference with Holistic View of Food Production

05.06.2018 | Event News

 
Latest News

Novel method for investigating pore geometry in rocks

18.06.2018 | Earth Sciences

Diamond watch components

18.06.2018 | Process Engineering

New type of photosynthesis discovered

18.06.2018 | Life Sciences

VideoLinks
Science & Research
Overview of more VideoLinks >>>