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Using linked housing and tax records from Denmark combined with a major reform of the mortgage interest deduction in the late 1980s, we carry out the first comprehensive long-term study of how tax subsidies affect housing decisions. The reform introduced a large and sharp reduction in the mortgage deduction for top-rate taxpayers, while reducing it much less or not at all for lower-rate taxpayers. We present three main findings. First, the mortgage deduction has a precisely estimated zero effect on homeownership. This holds even in the very long run. Second, the mortgage deduction has a sizeable impact on housing demand at the intensive margin, inducing homeowners to buy larger and more expensive houses. Third, the largest effect of the mortgage deduction is on household financial decisions, inducing them to increase indebtedness. These findings suggest that the mortgage interest deduction distorts the behavior of homeowners at the intensive margin, but is ineffective at promoting homeownership at the extensive margin and any externalities that may be associated with it.        

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It is clear that meeting the Paris climate target of not exceeding 2 degrees Celsius (2°C) (and making best efforts to reach 1.5°C) global warming over this century will require a radical (that is, to the root) restructuring of energy supply and transmission systems globally.1 Furthermore, the technologies assumed to populate the clean energy shift (wind, solar, hydrogen and electricity systems) are in fact significantly MORE material intensive in their composition than current traditional fossil-fuel-based energy supply systems (Vidal, Goffé, and Arndt 2013). Our analysis in Chapter 2 indicates a rapid rise in demand for relevant technologies and corollary metals between reaching a 4DS and 2DS climate objective. Relevant metals demand roughly doubles for wind and solar technologies, but the most significant upsurge occurs with energy battery storage technologies—more than a 1000 percent rise for metals required for that particular clean energy option. . . . However, there is also an increasing sensitivity that supplying clean technologies required for a carbon-constrained future could create a new suite of challenges for the sustainable development of minerals and resources. Simply put, a green technology future is materially intensive and, if not properly managed, could bely the efforts and policies of supplying countries to meet their objectives of meeting climate and related Sustainable Development Goals. It also carries potentially significant impacts for local ecosystems, water systems, and communities.

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In 1978, California adopted building codes designed to reduce the energy used for heating and cooling. Using a rich dataset of hourly electricity consumption for 158,112 California houses, we estimate that the average house built just after 1978 uses 13% less electricity for cooling than a similar house built just before 1978. Comparing the estimated savings to the policy’s projected cost, we conclude that the policy comfortably passes a cost-benefit test.   

Report

The Small Business & Entrepreneurship Council’s “Small Business Tax Index 2017” ranks the states from best to worst in terms of the costs of their tax systems on entrepreneurship and small business. This year’s edition of the Index pulls together 26 different tax measures, and combines those into one tax score that allows the 50 states to be compared and ranked.

The 26 measures are: 1) state’s top personal income tax rate, 2) state’s top individual capital gains tax rate, 3) state’s top tax rate on dividends and interest, 4) state’s top corporate income tax rate, 5) state’s top corporate capital gains tax rate, 6) any added income tax on S-Corporations, 7) any added income tax on LLCs, 8) Section 179 expensing conformity, 9) average local personal income tax rate, 10) whether or not the state imposes an alternative minimum tax on individuals, 11) whether or not the state imposes an alternative minimum tax on corporations, 12) whether or not the state’s personal income tax brackets are indexed for inflation, 13) whether or not the state’s corporate income tax brackets are indexed for inflation, 14) the progressivity of the state’s personal income tax brackets, 15), the progressivity of the state’s corporate income tax brackets,16) property taxes, 17) consumption-based taxes (i.e., sales, gross receipts and excise taxes), 18) whether or not the state imposes a death tax, 19) unemployment taxes, 20) whether or not the state has a tax limitation mechanism, 21) whether or not the state imposes an Internet access tax, 22) remote seller taxes, 23) gas tax, 24) diesel tax, 25) wireless taxes, and 26) LLC fees.

The 15 best state tax systems are: 1) Nevada, 2) Texas, 3) South Dakota, 4) Wyoming, 5) Washington, 6) Florida, 7) Alabama, 8) Ohio, 9) North Carolina, 10) Colorado, 11) Arizona, 12) Alaska, 13) Michigan, 14) Indiana, and 15) Utah. The 15 worst state tax systems are: 36) Delaware, 37) Arkansas, 38) Maryland, 39) Nebraska, 40) Kentucky, 41) Connecticut, 42) Oregon, 43) New York, 44) Vermont, 45) Hawaii, 46) Iowa, 47) Minnesota, 48) Maine, 49) New Jersey, and 50) California.

Report

This paper evaluates the wage, employment, and hours effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016.

Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.

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Nov. 17, 2017 / Andrew Khouri

Nov. 17, 2017 / The Editorial Board