the recent growth of the subprime credit market. regarding the composition of debt, a key fact is that most of the recent expansion in consumer debt has been in the form of mortgage debt. indeed, in 2002 new mortgage debt accounted for close to 90 percent of the overall growth in household debt. this recent growth in mortgage debt continues a marked trend. between 1992 and 2002, mortgage debt of households rose from 59 percent of aggregate disposable income to 74 percent of disposable income. why has mortgage debt risen by so much in the past decade? one very positive factor is the secular increase in u. s. homeownership rates. because of rising incomes, increased rates of family formation, and the expansion of so - called subprime mortgage lending, more people have chosen to buy homes rather than to rent, increasing the value of mortgages outstanding. a second factor is favorable tax treatment : the 1986 tax reform act, which retained the tax - deductible status of mortgage interest but eliminated it for other types of loans, spurred a substitution of mortgage debt for consumer credit ( for example, through the popularization of home equity lines of credit ). finally, most recently, mortgage debt has been powerfully boosted by the low mortgage interest rates available in the past couple of years. these low rates have stimulated record amounts of new home construction, which has not only permitted a growing number of americans the opportunity for home ownership but has played a vital role in maintaining aggregate demand throughout the recession and recovery - not only in the construction industry but in ancillary industries such as home furnishings. as you may know, low mortgage rates have not only stimulated home construction but have also induced an enormous wave of refinancing of existing mortgages. according to a recent article in the federal reserve bulletin ( canner, dynan, and passmore, 2002 ), 10 percent of u. s. households surveyed in the first half of 2002 reported having refinanced a home mortgage since the beginning of 2001. refinancing has allowed homeowners both to take advantage of lower rates to reduce their monthly payments and, in many cases, to " extract " some of the built - up equity in their homes. according to the fed study, the average amount of home equity extracted in cash - out transactions in according to the bureau of the census, the share of u. s. households that owned homes rose from 64. 0 percent in 1990 to 67

be reversed as workers would naturally be better able to get jobs and would not be remaining on the unemployment rolls. this is one action that seems to satisfy all three conditions. accelerate scheduled cuts in tax rates. if future tax - rate cuts are already enacted into law, putting them into effect sooner than planned could be done quickly. presumably the relevant political compromises have already been made. as the acceleration would not damage the long - run budget position, the reversibility condition is satisfied. but that property could lessen the effect of the rate cuts. it has been found that consumers spend relatively little out of one - shot increases in their income. they spend much more when tax cuts are viewed as permanent rather than one - time events. since rational, forward - looking consumers should view accelerated rate cuts as one - shot increases in income, the effect of these cuts on consumption could be limited. on the other hand, if consumers are not forward - looking but wait for their tax cuts before they begin spending, the accelerated rate cuts could stimulate a normal amount of consumer spending. in this case accelerated rate cuts could satisfy all three conditions. if one changed the tax policy expectations, the overall verdict is, if anything, less favorable. suppose households did not expect proposed future rate cuts to become law. in such cases, moving up rate cuts might have a stronger perceived effect on permanent income and consumption and more clearly satisfy the impact test. but the same action might take the general budget out of long - term balance, at least as far as bond markets are concerned, and would fail the reversibility test. in this latter case, the accelerated tax cuts satisfy only two conditions. temporary cuts in payroll taxes. one could also respond to recessions by cutting payroll taxes for a limited period. the cuts could be made quickly, satisfying the first requirement. but as with income taxes, if rates are cut only for a short time, the funds will appear to be temporary to consumers, in which case their effect on consumption may not be very large. another problem with changing payroll taxes involves the fact that virtually all of them are now devoted to entitlement trust funds such as social security. the social security trust fund is already underfunded in a long - term actuarial sense, and payroll - tax revenues could not be removed from the fund, even for a short period, without raising the long - term actuarial deficit. moreover, one would not want to start the tradition of using a long -