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 firstname.lastname@example.org or 713-348-6775.
“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 | Source: EurekAlert!
Further information: www.rice.edu
More articles from Business and Finance:
Texas Tech Cotton Economists Unveil New Global Cotton Outlook Analysis
03.05.2013 | Texas Tech University
Common component strategy could improve profits
30.04.2013 | University of Illinois at Urbana-Champaign
Researchers have shown that, by using global positioning systems (GPS) to measure ground deformation caused by a large underwater earthquake, they can provide accurate warning of the resulting tsunami in just a few minutes after the earthquake onset.
For the devastating Japan 2011 event, the team reveals that the analysis of the GPS data and issue of a detailed tsunami alert would have taken no more than three minutes. The results are published on 17 May in Natural Hazards and Earth System Sciences, an open access journal of ...
A new study of glaciers worldwide using observations from two NASA satellites has helped resolve differences in estimates of how fast glaciers are disappearing and contributing to sea level rise.
The new research found glaciers outside of the Greenland and Antarctic ice sheets, repositories of 1 percent of all land ice, lost an average of 571 trillion pounds (259 trillion kilograms) of mass every year during the six-year study period, making the oceans rise 0.03 inches (0.7 mm) per year. ...
About 99% of the world’s land ice is stored in the huge ice sheets of Antarctica and Greenland, while only 1% is contained in glaciers.
However, the meltwater of glaciers contributed almost as much to the rise in sea level in the period 2003 to 2009 as the two ice sheets: about one third. This is one of the results of an international study with the involvement of geographers from the University of Zurich.
Second sound is a quantum mechanical phenomenon, which has been observed only in superfluid helium.
Physicists from the University of Innsbruck, Austria, in collaboration with colleagues from the University of Trento, Italy, have now proven the propagation of such a temperature wave in a quantum gas. The scientists have published their historic findings in the journal Nature.
Below a critical temperature, certain fluids become superfluid ...
Researchers use synthetic silicate to stimulate stem cells into bone cells
In new research published online May 13, 2013 in Advanced Materials, researchers from Brigham and Women's Hospital (BWH) are the first to report that synthetic silicate nanoplatelets (also known as layered clay) can induce stem cells to become bone cells without the need of additional bone-inducing factors.
Synthetic silicates are made ...
17.05.2013 | Physics and Astronomy
17.05.2013 | Physics and Astronomy
17.05.2013 | Physics and Astronomy
17.05.2013 | Event News
15.05.2013 | Event News
08.05.2013 | Event News