Topic: Public Finance
News
July 30, 2017

You probably haven’t heard much about the looming pension crisis because elected officials don’t like talking about it and it’s easy for them to kick the can down the road: they can make promises to public employees now that won’t come due until they’re out of office.

But the slow creep of pension costs is crowding out investments in other areas, including education, environmental stewardship, social services, and public transportation. In essence, the state is being forced to default on its social obligations to pay for its pension obligations. If you’re a progressive, fixing this problem may be the most important issue facing the state.

Report

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.        

News
July 27, 2017

The state Supreme Court will review San Diego’s five-year-old pension cutbacks that, if overturned, would require the city to spend millions creating retroactive pensions for more than 3,000 workers hired since 2012. The court voted unanimously on Wednesday to review an April ruling by the Fourth District Court of Appeal that had vindicated the city and its pension cuts.

News
July 25, 2017

From 1977 through 2012 (the most recent year for which the Tax Foundation, a business-friendly think tank, has calculated tax-burden data), the state and local tax burden faced by Massachusetts residents fell from 12.3 percent of income to 10.3 percent. That may not sound like much of a decline, but over that period only three states -- Alaska, North Dakota and South Dakota -- saw bigger decreases. Massachusetts, which had ranked among the top three or four states for tax burden in the late 1970s and early 1980s, has since 2000 oscillated around 12th place. . . . Massachusetts hasn't just created more jobs, it has apparently created better jobs, with per capita personal income rising from below that of the rest of the Northeast in 1980 to 11.6 percent higher in 2016.

News
July 24, 2017

The mortgage interest deduction, a sacred cow in the U.S. tax code, does nothing to promote homeownership, according to an academic paper released Monday, a finding that undermines one of the core justifications for the tax break. Letting taxpayers deduct mortgage interest encourages them to buy bigger homes and more expensive homes – but it doesn’t change that fundamental decision about whether to buy in the first place

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