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The (Un)Changing Geographical Distribution of Housing Tax Benefits: 1980 to 2000

Working paper #436
Todd Sinai and Joseph Gyourko

Using tract-level data from the 1980, 1990, and 2000 Censuses, we estimate how the income tax-related benefits to owner-occupiers are distributed spatially across the United States. Even though the top marginal tax rate has fallen substantially since 1980 and the tax code more generally has become less progressive, the real value of the tax subsidy per homeowner was virtually unchanged between 1979-1989, and then rose substantially between 1989-1999.

Geographically, gross program benefits have been and remain very spatially targeted. At the state level, California’s owners have received a disproportionate share of the benefit flows over the past two decades. Their share of the gross benefits nationally has fluctuated from 19 to 22 percent. Depending upon the year, this is from 1.8 to 2.3 times their share of the nation’s owners. The top five state’s share of tax benefits to its share of owners has risen over time, while the median state’s ratio has declined, from 0.83 in 1979 to 0.76 in 1999.

Examining the data at the metropolitan area level finds an even more dramatic spatial targeting, and a spatial skewness that is increasing over time. The top five metropolitan areas received 18 percent of the aggregate tax subsidy in 1999 and 5 percent of the subsidy per owner, despite constituting only 1 percent of the areas in the data. While the metropolitan areas that are the “winners” rarely change, they have appropriated an ever larger portion of the total tax benefits over the 20 years. Skyrocketing house prices in certain coastal metropolitan areas, combined with higher tax rates in those areas, appear to play a large role in explaining this pattern.

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