The annual budget prepared by the Office of Management and Budget includes a report on the estimated cost of tax expenditures for the immediate past year and ten years going forward.
Federal law defines tax expenditures as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”
The FY17 budget identifies 169 tax expenditures that will cost $1.283 trillion in 2016 and are projected to cost $17 trillion over the next ten years.
Among these are four large tax expenditures that subsidize home ownership:
The mortgage interest deduction (MID),
The state and local property tax deduction,
The capital gains exclusion, and
The exclusion of net imputed rental income.
The FY17 budget lowers the value of the MID for 2015 from what was projected in FY16 from $69.48 billion to $58.85 billion. The ten-year projection has been lowered from $1.068 trillion to $948 billion.
These four tax expenditures reduce federal revenue from individual taxpayers.
The United for Homes (UFH) campaign calls for funding the NHTF with revenue raised by reforming the MID.
The UFH proposal would lower the amount of mortgage debt from $1 million to $500,000 for which interest can be deducted and convert the deduction to a 15% non-refundable tax credit. The Tax Policy Center projected in 2015 that these two changes phased-in over five years would generate $213 billion over ten years.
The new estimates for the other three major home-ownership tax expenditures do not show similar declines. The ten-year projection for the deduction for state and local property taxes decreases to $453 billion in the FY17 budget from $454 billion in the FY16 budget, while the capital gains exclusion ten-year projection increased from $513 billion in FY16 to $564 billion in FY17.
The change in the ten-year estimate for the cost of the exclusion for net imputed rental income is the most dramatic, going from $956 billion in FY16 to $1.178 trillion in the FY17 budget. Net imputed rental income is not a tax expenditure that appears on any tax form, but many tax policy experts contend it is a substantial subsidy for homeowners.
Net imputed rent income accrues to homeowners because they do not pay taxes on income they derive from not paying rent, even though they do get tax breaks for some of the cost of being homeowners, i.e., mortgage interest and state and local property taxes deductions.
The Low Income Housing Tax Credit (LIHTC) is primarily a tax benefit for corporations, which receive 95% of the credit. The total ten-year projected cost of the LIHTC is $87.6 billion in the FY17 budget compared to $88 billion in the FY16 budget.