Welcome to the Center for Housing and Tax Research

As of November 20, 2021 deaths in America related to the coronavirus (CV) have slowed, but have crossed the 769,000 mark. Many states have tightened again and “things" in the U.S. are moving to a confused new normal. State budgets for FY21 have done better than expected – dropping only by 0.7% according to estimates by the Census Bureau. A number of things have gone right: 1) Early action by the Federal Reserve to shore up the capital markets propped up incomes, kept businesses afloat and reduced unemployment; 2) cash given to consumers in the two federal stimulus package kept low-income consumer buying; 3) stock market gains during the pandemic increased the wealth of the middle- and upper-income classes and contributed to them continuing to spend and 4) many states have diversified economies with workers who could continue to work from home. However, in a bid to find new tax revenues to help the hardest hit, the District of Columbia is proposing to raise the district’s marginal income tax rate. Under the budget provision, the top marginal rate in the District of Columbia would be 10.75 percent, matching New Jersey’s recent tax hike and falling just under New York’s 10.9 percent (the result of the only other income tax increase this year), Hawaii’s 11 percent, and the 13.3 percent top rate in California.

People continue to desperately search for detached housing, either to feel safe from infection or because they need additional space to work at home. This along with lower mortgage rates and stock market gains have increased the demand for SFR homes for the past twelve months. The Case-Shiller 20 city home price index increased by 19.7% YOY for Jul-21. It simultaneously reduced the demand for apartments in multi-unit buildings lowering rents in several cities. Higher home prices are leading to some landlords to charge higher rents for detached rental properties and this could add to inflationary pressures.

Income Tax Revenue Collections

Can States Close Funding Gaps By Raising Income Tax Rates?

During the Great Recession, counts of high-income taxpayers dropped by 14%. Even if counts of high-income taxpayers in 2020 dropped by a smaller amount because FY20 contained only four months of coronavirus returns and recent stock market gains have ameliorated income loses for FY21, it is not unreasonable to assume tax revenue declines of similar magnitude for those years. We anticipate a combined two year decline in state PIT revenues from all taxpayers of about $95 billion (a 23% decline). This is more than ½ of the money provided by the CARES act. Do states have any ability to raise additional tax revenues from their citizens?

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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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Single Family Purchase Market

Impact Of CV/TCJA On High-Tier HPA:

TCJA reduced the MID deduction. This has reduced the financial value of owning a home. Demand for expensive homes has fallen relative to what would have been had TCJA not become law. Nonetheless, demand for homes has been very strong this spring/summer due to CV. These are two contervailing forces.  We find that as of Jun-20, home price for high-tier homes in high SALT states has appreciated faster where taxes are lower.

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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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