Taxes, the Problem and Solution: A Model for Vanishing Deductions and Exclusions for Residence-Based Tax Preferences

Taxation is an essential component to raising revenue for the government. Despite public resistance to raising taxes during an economic crisis, taxation has historically been successful in addressing revenue shortfalls. While it may be a political risk to increase taxes on ordinary income for the average American, there may not be the same societal resistance to modifying or eliminating tax preferences that primarily benefit the wealthiest taxpayers. By modifying or eliminating certain tax preferences, the government can address some of the revenue shortfalls without raising taxes. This article contributes to the scholarly discussion on the modification and elimination of tax preferences by demonstrating the connection between the tax preferences associated with, and the overinvestment in, homeownership. In addition, this article demonstrates why limitations should be imposed on: (1) the type of taxpayers that qualify for and receive the benefit of these preferences; and (2) how much taxpayers receive. This article proposes limitations based on both household income with phase-outs and on the number of tax benefits a taxpayer may receive based on homeownership. These housing-based tax preferences cost the government billions of dollars in lost revenue, yet benefit only a small percentage of the population without a clear impact on the homeownership rates