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:
Re: “True Progressivism” from The Economist
is good old FT playing class envy?
let’s all agree that anything we can do to keep a dollar out of DC is a good thing. if you haven’t noticed…NO MATTER HOW MUCH CASH WE SHIP TO DC…IT’S NEVER ENOUGH! they never spend less than they take in, they never spend it wisely, they never get a dollars worth for a dollar…never. even while the country preps to launch off the fiscal cliff they SCHEDULED 18 months ago they ship boxcars of OUR cash to egypt, turkey, israel, and dozens of other super-needy nations and even china (true).
i welcome the cliff…it will force the issue on those with no spine or brain.
Would eliminating the mortgage interest deduction decrease homeownership rates?
Since only those who itemize deductions gain from the credit, the answer is likely no. If you itemize deductions, you’re probably relatively wealthy. And if you’re relatively wealthy, you’re probably going to own rather than rent regardless of tax incentives.
There are good historical examples backing this up. Homeownership rates in the U.K. actually rose after it eliminated a mortgage interest deduction in 2000, from approximately 70% to around 72% by 2005. Furthermore, homeownership rates in the U.S. are roughly equal to those in Canada and Australia, both of which don’t allow mortgage interest deduction. The correlation between mortgage interest deductions and homeownership rates seems elusive.
Clueless or just plain ignorant? Factor in the AMT then report on working class regression and I challenge you to report your conclusions and compare this illustration with your full report that includes all pertinent facts.
This writer of this article should be fired as it is poorly written frivolous propoganda. The lower middle class and the 47% of the population that pays little to no taxes should be thanking the people making $250k plus. I worked 12 to 14 hours a day getting my real estate business going and was finally rewarded with an income over $250k. I employee a working mother full time with a flex schedule and just one year for example paid over $80k in income taxes. If you are telling me that I’m not paying my fair share then you have a serious entitlement issue. I sacrificed for years to get where I am. I didn’t have to have the instant rewards the youth of today is obviously voting for and thinking they deserve. After you have paid the gov’t over $80k in one year as a single tax payer, then and only then should you have an opinion on the topic. Until then, you are speaking out of turn. I’ve been on both sides, your opinion doesn’t even count. The “actual” tax payers deserve a break here and there to even the playing field. Should we have a flat tax? Say every citizen has a duty to pay an exact amount….$15k? $20k? even $30k? I’m down….let’s do it!
You have to be kidding! The MID is the single largest tax deduction for middle class and lower class home owners–if that goes, their net spendable income drops accordingly. Just because high income homeowners benifit more does not mean it won’t help all homeowners.
The single most important reason to own your own home is to fix your housing expense, rather than be boiled alive by insidious inflation like the frog in the hot water. You are obviously young and need to look back at historical rental rates to appreciate what inflation will do over the long term.
This article belongs in an entitlement office.
These numbers are not even close. You will have a flight from the R.E. market with no recovery in sight.
FTHB, Investors including new and re sale transactions.
ABS info.
Are you forgetting about the alternative minimum tax? My wife and I are at $250k per year income and we are limited in how much schedule A deductions we can take, which greatly reduces our benefits. In addition, we are in a much higher tax bracket and pay a higher percentage of our income in taxes. If you want to kill home sales, then kill the mortgage interest deduction.
I totally disagree with the reasoning and conclusion of this article.
It is a fact that in the expensive coastal cities that the cost of home ownership is about 50% of a family income. A middle class family making A modest combined income of $100,000 per year often has a mortgage of $4000 a month on a $600,000 mortgage on a typical $800,000 tract home. Such a middle class family absolutely needs to have interest deduction on their $40,000 annual interest payments. Without a full interest deduction they they can’t afford to own their own home. It is a fact that home ownership is good for both the individual and also the community. A family living in a coastal city with $100,000 combined family income truly struggles financially and would not be considered upper middle class.
Regardless what happens we are stuck with problems that are not going away.
Reminds Eligible Borrowers of December 31, 2012 Deadline to Request Free, Impartial Foreclosure Review
http://www.federalreserve.gov/newsevents/press/bcreg/20121113a.htm
In your example, the MID benefit for the American taxpayer earning $45K to $70K is 7.1%. The remaining Federal Tax (excluding all other deductions) is $9658.00
For the American Taxpayer earning $250K, the benefit of the MID is 9.8%. That person’s remaining Federal Tax is $60,452.50 (using the same rules).
I averaged out your range for the first person at $57,500 and used $250K for the second person. Looks like the higher earner makes a little less than 5 times what the lower earner makes and pays a little more than 6 times the taxes. Not sure what your conclusion is with this article if you are trying to point out some class or income based disparity in our current treatment of mortgage interest deduction.
At the same time; reducing or eliminating your ‘regressive yearly subsidy’ will cut the heart out of the current fragile recovery we have in the housing industry. An industry that generates $2 Trillion dollars worth of economic activity in this country. Your approach might be instead that we are investing $131B for $2 Trillion dollars worth of economic activity* that is not temporary in its nature and is one of the core values and aspirations of being an American.
*The National Association of Home Builders attributes 15.1% of GDP to Residential Fixed investment and Housing Services. For 2011 that would be 15.1% of $13.299T. That’s a couple of bucks over $2 Trillion.