Giving Handouts to the Rich
A new report from Smart Growth America, a national coalition that fights sprawl, looks at 50 federal programs that deal with housing and real estate. In total, the federal government spends around $450 billion each year on such programs, counting tax breaks, loans and loan guarantees, and direct investment in real-estate projects….
Who benefits the most from the messiness? Surprise: the rich. For instance, the biggest tax-expenditure program for housing is the Mortgage Interest Deduction, which allows people to deduct payments on their mortgage interest on their taxes. Created in 1913, the MID costs an average of $80 billion annually, and it’s supposed to help families buy a primary home. But 30 percent of the households claiming the deduction claim it on a second home—like, say, a vacation home. Lower-income families have a harder time claiming the deduction, because it requires itemized taxes.
The rich also get a hand when it comes to housing subsidies. Those who make more than $200,000 get, on average, $6,300. For those who make between $30,000 and $40,000, the number drops to only $265.
This is only further evidence that soaring deficits are not the result of America’s safety net, nor the fault of America’s poor.
Posted on January 18, 2013, in Housing, Welfare State and tagged deficit, housing subsidies, mortgage interest deduction. Bookmark the permalink. 4 Comments.
Matt,
I don’t know of any serious person who is saying the “soaring deficits” are only because of America safety net or the fault of America’s poor. Instead it is because of a government that continues to spend more than it takes it in by trying enlarging *who* and *what* it is going to spend more and more money on. We can add “safety net”, “fair share”, and “common sense” as new phrases used along with “the poor”, “the children”, “the elderly”, “education”, and others to justify any government desire to grab more money.
Ronnie
Hi Ronnie,
How are you defining “serious person”?
Hey Matt,
I guess that would be subjective to the person that uses it, just like “the poor” and “safety net”, but what I was trying to get at is that you can always find someone who will say something on the fringe of the real arguments being made.
It doesn’t advance the debate much to use what just about all would say is not an accurate statement to make a point.
Who have you heard make that statement and I will tell you if I think they are “serious”
Ronnie
I can see why some people call for the end of the mortgage interest deduction, and I can certainly see adjusting the way it works to limit the benefit to the wealthy, but I think characterizing the deduction as a handout to the rich is misleading.
For one, there are already limits on the interest deduction which disallow interest deductions beyond the first million in debt incurred to acquire a house (or multiple ones), along with a $100,000 limitation on equity loans. We could adjust those numbers down in order to focus the benefit more specifically on a different class of people.
However, the real reason for the fact that the benefit is hitting those with bigger mortgages (which leads to bigger interest expenses) is that interest rates are at an historic low. Take a $100,000 loan, which I trust does not seem like an extremely high number; if you had a mortgage at 8% (more typical of the 90s), your deduction would be $8,000, as compared to $3,000 at current rates. That has a huge impact on whether you itemize. A couple making $40,000 who chose to tithe to church would already be receiving a benefit at that point.
You should also be careful with how you quote your source material. You make it sound like there’s an average $6,000 subsidy that the $200k+ people get on top of tax breaks, when that number is actually, per the chart in the article, inclusive of both taxes and other subsidies.
As the study you cite points out, the deduction has the effect of promoting home ownership over renting, but I’m not sure that’s an awful thing. It also appears that some of the subsidies that this report is complaining about are things like funds for rural wastewater treatment and broadband access and other tax benefits like the exemption from recognizing gain on home sales. None of these are about giving handouts to the rich.