Welcome To The Center For Housing and Tax Research

On May 27, 2020 deaths in America related to the Corona virus (CV) have crossed the 100,000 mark. Most states are under lockdown or partial lockdown. Unemployment in the U.S. has jumped to 15 percent and stock markets (although having rebounded somewhat) are still about 11 percent below their 2019 highs. States across America are facing tax revenue shortfalls for the three months remaining in FY20, and even more significant tax revenue declines for FY21. Most of the job losses are in low wage sectors. Consequently, more tax revenues are going to have to come from high-income taxpayers. However in December 2017, Congress passed the 2017 Tax Cuts and Jobs Act (TCJA). This drastically changed the incentive to own a home especially in states that have high income and/or property taxes. There is now a strong incentive for wealthy individuals to leave that state. TCJA and CV are two external shocks to the U.S. labor and housing markets which are drastically altering income tax revenue collections. 

Income Tax Revenue Collections

TCJA So Far:

The 2017 Tax Cuts and Jobs Act represents an exogenous shock to the U.S. housing  market and state tax revenue collections. Evidence so far on home price appreciation and FY18/19 tax revenue collection show a very slow, but rising impact. Historical evidence on similar shocks to housing and tax revenue collections provide mixed evidence as to what will happen next.

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The Impact Of A 1% Increase In State Income Tax Rates On Net-outmigration Of High-Income Taxpayers In The Initial Year:

TCJA is a national law which does not change a state’s stated marginal tax rate. The impact, however, is to raise taxpayer’s income tax burdens in high SALT states. This negative financial change could motivate some high-income taxpayers to leave the state. We look at the experience of three states which raised their marginal income tax rate during some point in the years 2012 – 2018 to guage the impact of a 1% tax rate increase on net-outmigration.

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Housing Market Risk

Impact Of TCJA On High-Tier Homes:

TCJA reduced the MID deduction. This has reduced the financial value of owning a home going forward. Consequently demand for expensive homes has fallen relative to what would have been had TCJA not become law.  We find that as of Aug-19, home price appreciation for high-tier homes in high SALT states has been slowing.

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Impact Of TCJA On Low-Tier Homes:

TCJA reduced the amount of mortgage size that one can deduct on federal taxes to the first $750,000. It, however, also raised the standard deduction thereby reducing the value of the MID on homes with smaller mortgages.  It has changed the incentive to own even a small home.

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