Mortgage Revenue Bonds: Tax Exemption with a Vengeance

Abstract

This paper presents calculations of the impacts of two levels of mortgage revenue bonds (MRBs) on: (1) yields on home mortgages, tax-exempt bonds and taxable bonds, (2) the allocation of the American fixed capital stock among residential (by three tax brackets), business, and state and local capital, (3) the productivity of this aggregate stock, and (4) the federal deficit. The levels of MRBs analyzed are $40 billion and the maxi-mum permitted by the realities of the market place. The latter is estimated to be $440 billion or over half of regular home mortgages outstanding. Limited levels of MRBs directed solely at lower income housing would not have any clear impact on productivity. An unlimited volume would generate an estimated annual productivity loss of $3 billion. Assuming a 4 percent discount rate, the present value of this stream is $75 billion.