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 Uncovering decades of questionable investments
18.01.2018 | University of Texas at Austin, Texas Advanced Computing Center

nachricht Corporate coworking as a driver of innovation
22.11.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

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: Artificial agent designs quantum experiments

On the way to an intelligent laboratory, physicists from Innsbruck and Vienna present an artificial agent that autonomously designs quantum experiments. In initial experiments, the system has independently (re)discovered experimental techniques that are nowadays standard in modern quantum optical laboratories. This shows how machines could play a more creative role in research in the future.

We carry smartphones in our pockets, the streets are dotted with semi-autonomous cars, but in the research laboratory experiments are still being designed by...

Im Focus: Scientists decipher key principle behind reaction of metalloenzymes

So-called pre-distorted states accelerate photochemical reactions too

What enables electrons to be transferred swiftly, for example during photosynthesis? An interdisciplinary team of researchers has worked out the details of how...

Im Focus: The first precise measurement of a single molecule's effective charge

For the first time, scientists have precisely measured the effective electrical charge of a single molecule in solution. This fundamental insight of an SNSF Professor could also pave the way for future medical diagnostics.

Electrical charge is one of the key properties that allows molecules to interact. Life itself depends on this phenomenon: many biological processes involve...

Im Focus: Paradigm shift in Paris: Encouraging an holistic view of laser machining

At the JEC World Composite Show in Paris in March 2018, the Fraunhofer Institute for Laser Technology ILT will be focusing on the latest trends and innovations in laser machining of composites. Among other things, researchers at the booth shared with the Aachen Center for Integrative Lightweight Production (AZL) will demonstrate how lasers can be used for joining, structuring, cutting and drilling composite materials.

No other industry has attracted as much public attention to composite materials as the automotive industry, which along with the aerospace industry is a driver...

Im Focus: Room-temperature multiferroic thin films and their properties

Scientists at Tokyo Institute of Technology (Tokyo Tech) and Tohoku University have developed high-quality GFO epitaxial films and systematically investigated their ferroelectric and ferromagnetic properties. They also demonstrated the room-temperature magnetocapacitance effects of these GFO thin films.

Multiferroic materials show magnetically driven ferroelectricity. They are attracting increasing attention because of their fascinating properties such as...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

10th International Symposium: “Advanced Battery Power – Kraftwerk Batterie” Münster, 10-11 April 2018

08.01.2018 | Event News

See, understand and experience the work of the future

11.12.2017 | Event News

Innovative strategies to tackle parasitic worms

08.12.2017 | Event News

 
Latest News

Let the good tubes roll

19.01.2018 | Materials Sciences

How cancer metastasis happens: Researchers reveal a key mechanism

19.01.2018 | Health and Medicine

Meteoritic stardust unlocks timing of supernova dust formation

19.01.2018 | Physics and Astronomy

VideoLinks
B2B-VideoLinks
More VideoLinks >>>