The (Un)changing Geographical Distribution of Housing Tax Benefits: 1980–2000

Using tract-level data from the 1980, 1990, and 2000 censuses, we estimate how the income-tax-related benefits to owner-occupiers are distributed spatially across the United States. Even though the top marginal tax rate has fallen substantially since 1979 and the tax code more generally has become less progressive, the tax subsidy per household or owner was almost unchanged between 1979 and 1989 and then rose substantially between 1989 and 1999.
Geographically, gross program benefits have been and remain spatially targeted. At the state level, California's owners have received a disproportionate share of the subsidy flows over the past two decades. Their share of the gross benefits nationally has fluctuated from 19 to 22 percent. Depending on the year, these percentages represent from 1.8 to 2.3 times California's share of the nation's owners. The median ratio of the share of tax benefits to the share of owners has declined over time, from 0.83 in 1979 to 0.76 in 1999.
Examining the data at the metropolitan-area level finds an even more dramatic spatial targeting and a spatial skewness that is increasing over time. Comparing benefit flows in 1979 in the top 20 areas versus those in the bottom 20 areas finds that owners in the highest subsidy areas received from 2.7 to 8.0 times the subsidy reaped by owners in the bottom group. By 1999, the analogous calculation finds owners in the top 20 areas receiving from 3.4 to 17.1 times more benefits than owners in any of the 20 lowest recipient areas. Despite the increasing skewness, the top subsidy recipient areas tend to persist over time. In particular, the high-benefit-per-owner areas are heavily concentrated in California and the New York City-Boston corridor. While taxes are somewhat higher in these places, it is high and rising house prices that appear most responsible for the large and increasing skewness in the spatial distribution of benefits.