A recent brief from the Urban Institute titled “Who Benefits from Asset-Building Tax Subsidies?” looks at how tax expenditures that promote wealth building are distributed by income. Of the $1.2 trillion in federal tax expenditures in 2013, one third ($384 billion) went to asset-building subsidies for homeownership, retirement and life insurance, higher education, and small business development.
Over half (51%) were for the mortgage interest deduction and the property tax deduction that subsidize homeownership. Over 70% of the value of these two tax breaks go to the top 20% of taxpayers by income, with another 20% going to the fourth highest income quintile. Less than 10% of the homeowner tax subsidies benefit the bottom 60% of all taxpayers.
The structure of the homeownership tax subsidies as deductions do little to increase homeownership rates or home equity, but rather incentive the purchase of larger, more expensive homes and taking on more debt. They do not contribute to saving. The authors note that tax credits do more to help low and moderate income households.
The brief provides support for the policy proposal of the United for Homes Campaign to convert the current mortgage interest deduction to a 15% non-refundable tax credit and to reduce the size of mortgage eligible for a tax break from $1million to $500,000. This proposal would expand the number of homeowners with mortgages who get a tax break from 39 to 51 million. The 16 million new beneficiaries would be homeowners with incomes under $100,000.
The United for Homes proposal would also generate over $230 billion in revenue over ten years that would be devoted to increasing the supply of rental housing for extremely low income households by capitalizing the National Housing Trust Fund.
To become an organizational endorser of the United for Homes Campaign, go to http://nlihc.org/unitedforhomes/support.
To read the Urban Institute paper, go to http://www.urban.org/UploadedPDF/413241-Who-Benefits-from-Asset-Building-Tax-Subsidies.pdf?utm_content=buffer9a314&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer