Case Study #1: Mortgage Interest Deduction for Owner-Occupied Housing
The federal individual income tax permits taxpayers who itemize to claim a deduction for the mortgage interest they pay on their primary residence. The Tax Foundation model predicts that ending the deduction would cause some economic harm. Losing the deduction would push some people into higher tax brackets, and the people affected would respond to the higher marginal tax rates by working and investing less. In addition, the higher cost of home ownership would somewhat reduce the value of the owner-occupied housing stock, either through lower home prices or the building of smaller housing units over time.