What does a tax break for homeowners have to do with the wealth gap in America?

The mortgage interest tax deduction (MID) primarily favors the top 20% income earners in the U.S., according to The Economist. The numbers are bleak: the MID gives the highest earners four times more housing subsidy than is provided to the poorest 20%.

Income disparity is a fact of life in a capitalist economy. But is the gap too wide? 25 years ago, the top 0.01% of earners made 1% of the national income. Today, they make nearly 5% of the national income. Some economists are beginning to forecast this widening gap will stall innovation and growth.

One way to level the field without halting growth is to cut dysfunctional government subsidies. That includes those disproportionately favoring the wealthy over the poor. The MID is a prime example of just such a subsidy.

first tuesday insight

For those who are fond of austerity:

Auto bailout: $85 billion

All HUD programs: $48 billion per year.

AIG bailout: $67 billion

MID: $131 billion. Just this year.

But wait, there’s more:

Take a look at the 40-year-old, middle-income American, earning $45,000-$70,000 annually. This bracket of taxpayers only receives a $747 deduction on average. Contrast this with the 40-year-old, upper-income American, earning $250,000 or more annually, who receives a $6,575 deduction on average.

Still think the MID is for the all-American, working class family? Think again.

Related article:

The MID truth test

Re: “True Progressivism” from The Economist