The Federal Tax Subsidy to Housing and the Reduced Value of the Mortgage Interest Deduction,” National Tax Journal

ABSTRACT with little success in reducing the subsidy This paper estimates the federal income to owner-occupied housing. 2 tax subsidy and the associated deadweight Some progress seems to have been made loss to both owner-occupied and rental with the Tax Reform Act of 1986 (TRA). housing. We focus on the tax subsidy after The most obvious and direct effect of TRA passage of the Tax Reform Act of 1986 and upon the subsidy stems from its general add more detail than other work in this lowering of marginal tax rates, especially literature regarding the distribution of the among high income households. All else subsidy among income classes and house- equal, these reductions in marginal tax hold types. Furthermore, attention is given rates lower the subsidy to housing. A less to an aspect of the subsidy to owner-oc- obvious but potentially more important cupied housing that has received little at- effect of TRA on the subsidy to owner-oc-cupied housing may stem from two other tention: the value of the mortgage interest provisions: TRA increases the standarddeduction and how its value is affected by deduction and reduces the number andthe standard deduction and the amount o