Homeowner Preferences: The Equity and Revenue Effects of Proposed Changes in the Status Quo.

Abstract This study examined the equity and revenue effects of proposed changes in the current federal income tax law relating to homeowner preferences. These changes in homeowner preferences have been put forth in the literature as a means of mitigating the inequitable treatment afforded renters compared to homeowners. The 1982 IRS individual Tax Model File was used to calculate each taxpayer's tax liability under current law arid various alternative tax policy options. Equity and revenue effects of various tax policy options were compared with the equity and revenue effects of current law (defined as Tax Reform Act of 1986 law, fully implemented). Horizontal equity effects were measured using weighted average changes in the coefficient of variation. Vertical equity effects were measured using changes in the Suits index. Finally, the revenue impact was compared with current law. Findings suggest that options that limit or eliminate the mortgage interest deduction and/or real property tax deduction would appear to be likely candidates for future policy decisions, as these options are among the few that increase both equity and revenue.