The Effect of the Tax Cuts and Jobs Act on the Housing Market

34 Pages Posted: 2 Nov 2019 Last revised: 4 Aug 2020

See all articles by Kamila Sommer

Kamila Sommer

Board of Governors of the Federal Reserve System

Paul Sullivan

American University

Date Written: July 22, 2020

Abstract

The Tax Cuts and Jobs Act of 2017 (TCJA) reduced the incentive for households to claim itemized deductions that subsidize homeownership and simultaneously lowered income tax rates. We use an equilibrium model to quantify the effects of the TCJA on house prices, homeownership, and welfare. The reform removes the tax subsidy to owner-occupied housing for most households, who now choose to claim the standard deduction. However, over-consumption of tax subsidized housing by the remaining wealthy itemizers persists. Wealthy households benefit the most from this large tax cut, so the TCJA is a regressive policy that increases welfare inequality.

Keywords: Tax Cuts and Jobs Act, TCJA, Tax Policy, Housing Market

Suggested Citation

Sommer, Kamila and Sullivan, Paul, The Effect of the Tax Cuts and Jobs Act on the Housing Market (July 22, 2020). Available at SSRN: https://ssrn.com/abstract=3474116 or http://dx.doi.org/10.2139/ssrn.3474116

Kamila Sommer

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Paul Sullivan (Contact Author)

American University ( email )

4400 Massachusetts Avenue, N.W.
Washington, DC 20016-8029
United States

HOME PAGE: http://www-personal.umich.edu/~paulsull/

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