A New Report Shows Tax Breaks for Homeownership Favor the Rich

Summary: A recent report released by the Corporation of Enterprise Development stated that homeowners received around $200 billion in tax breaks for the year 2013. However, the report also states that this number was only generated by the wealthy. Currently the tax breaks given to homeowners focuses mainly on those with large income houses, excluding many middle, low-middle, and lower income housing. Those in the top 1% of income receive an average of $17,276 in tax breaks annually while those in the bottom 20% only receive $3. To sum this up the rich receive nearly 5,756 times more tax break money than the poor.

However, Paul Ryan is trying to aim to help those in the lower classes and lower the breaks for the rich. It is set that Paul Ryan will be taking over for House Ways and Means Chair, Dave Camp. Although this is still in the transition period, just during the transition Paul was able to lower the tax cap on mortgage deduction for the rich from $1 million to $500,000. Although this currently does not help the lower income classes yet, it is a step in the right direction and as Paul Ryan fully moves into his new position, he aims to further this progress.

Original Article: The Huge, Regressive Tax Break Right Under Your Roof

A new report shows tax breaks for homeownership favor the rich

It would be tough to find anyone in Congress who doesn’t believe our tax code is too complicated and needs to be reformed. For Republicans, that often means lowering tax rates. For Democrats, it means closing tax loopholes and making the system more progressive. But if policymakers really want to clean up the tax code, they need to look at tax breaks that are embedded in our system. And the best place to start is with some of the most regressive ones: taxes breaks for homeownership.

A new report released Thursday by the Corporation for Enterprise Development, finds that homeowners collected $200 billion in 2013 from an assortment of different tax deductions. But the vast majority of those benefits accrued to the wealthy. For instance, a household in the top 0.1 percent receives an average of $17,276 in annual benefits from homeowner tax programs. For a household in the bottom 20 percent, it’s just $3. In other words, the rich receive 5,756 times as much in benefits from homeownership tax programs as the poor. That’s not that surprising, since many more upper-income households purchase homes than lower-income ones do.

There’s another way to capture the imbalance. Just look at the amount of money that the federal government is not collecting, because of these tax breaks. In 2013, the housing deductions were worth almost $70 billion for the top 20 percent of earners—and just $700 million for the bottom 20 percent of earners. Yes, that’s a factor of 100.

The traditional defense of these tax breaks is that they promote homeownership, which has been shown to have numerous additional benefits including improved health. But there’s a big problem with this argument: these deductions don’t actually subsidize homeownership. They subsidize bigger homes and more debt instead.

Consider the mortgage interest deduction that allows homeowners to deduct their interest payments on loans up to $1 million. The larger the debt (up to $1 million), the larger the interest payments—and the more the homeowner can deduct in taxes. As Nick Bunker, a research associate at the Center for Equitable Growth, wrote Wednesday, “The deduction gets pitched as an effort to increase homeownership, but academic research finds that really it just increases the size of homes purchased.” At the Washington Post, Catherine Rampell shows how the median house size has increased over the past 40 years. It’s at a record-high, after a slight dip post-Great Recession. Homeowners are incentivized to build larger houses thanks to the mortgage-interest deduction.

The good news is that while these tax breaks are entrenched in the U.S. tax system, policymakers are starting to notice them. In the tax reform plan he released earlier this year, House Ways and Means Chairman Dave Camp proposed lowering the cap on the mortgage interest deduction from $1 million to $500,000. Two weeks ago, Paul Ryan, who is expected to take over for Camp as Ways and Means chair, endorsed that part of Camp’s plan. “It ought to be a middle class tax break, not something for higher-income earners,” he said

Reducing this incentive for bigger homes and more debt is a step in the right direction, but it is only that. It still won’t help low- and middle-income people benefit more from homeownership tax programs. In other words, Camp’s plan only accomplishes half of Ryan’s statement. Hopefully if Ryan becomes chair, there will be more to come.

Source: http://www.newrepublic.com/article/119316/new-report-homeowner-tax-programs-massively-favor-rich

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