Mansion subsidies
Atlas, John & Dreier, Peter
Most Americans think that federal housing assistance is a poor people's program. In fact, fewer than one-fifth of all low-income Americans receive federal housing subsidies. In contrast, more...
...In contrast, more than threequarters of wealthy Americans—some with two expensive homes—get housing aid from Washington...
...Over half the members of the House of Representatives (including many liberal Democrats) have endorsed a nonbinding resolution, sponsored by Representative Marge Roukema (R–N.J...
...According to a CBO study, it "would retain the basic incentive for homeownership, but would not subsidize the luxury component of the most expensive homes and vacation homes...
...The political action committees of the National Association of Realtors (the nation's largest contributor), the National Association of Homebuilders, and the Mortgage Bankers Association have a vast local network and deep pockets...
...About 12 percent of this subsidy goes to the wealthiest 1 percent of taxpayers with incomes over $200,000...
...Neither Canada nor WINTER • 1992 • 93 Notebook Australia has a homeowner deduction, and their homeownership rate is about the same as that of the United States...
...If anything, the deduction has helped push up housing prices artificially, because homebuyers include the value of the tax subsidy in their purchase decision...
...A tax credit would serve the same function as the deduction of encouraging homeownership, but it would be available to all families—including those low- and moderate-income households that do not itemize their deductions and so cannot take advantage of the current tax break...
...Capping the credit or tying it progressively to income would limit subsidies for the wealthy...
...These ceilings are higher than the deductions now taken by nearly all homeowners...
...At the same time, less than one-fifth of the nation's low-income households—those who live in a subsidized apartment building, receive a rent voucher, or get a homeowner tax break—receive any federal housing assistance...
...Because demand is more elastic at the bottom and middle parts of the economy, a tax credit could make the difference between renting and owning for millions of poor and working-class families now shut out of the American Dream...
...Over 81 percent go to the 20 percent of taxpayers who earn over $50,000...
...I have no objections when the deduction goes for houses," says Representative Sam Gibbons of Florida...
...The Bush administration has continued the Reagan policy of dismantling federal housing programs for the poor...
...But it seems fair when so many Americans can't even afford a first home...
...Half of all homeowners do not claim deductions at all...
...Soon after taking office, President Bush, speaking at the Realtors convention, vowed to defend the existing homeowner subsidy...
...Over half of these tax breaks (51.6 percent) go to the 8 percent of taxpayers with annual incomes over $75,000...
...Only 23.4 percent of the 28.8 million households with incomes between $30,000 and $50,000 receive any homeowner subsidy...
...We suggest scrapping the homeowner deduction completely and trying an entirely new approach—a homeowner tax credit...
...Eliminating this tax break for the wealthy—while still preserving it for the middle class—could provide substantial money to finance housing assistance for low-income families...
...This represents the lowest subsidy level of any industrial nation...
...But let's no longer argue whether we can afford to do so...
...What to do...
...The housing industry is now in its worst slump since World War II...
...Tenants, of course, don't qualify...
...Limit mortgage interest deductions to $12,000 per single return or $20,000 per joint return, adjusted for inflation...
...This amount is more than five times President Bush's HUD (Housing and Urban Development) budget for low-income housing...
...But the way Congress operates—with its taxwriting and budget committees operating on separate paths—makes it difficult to make this linkage work...
...It would run into a political buzzsaw, particularly from representatives from vacation-industry strongholds like Florida, Maine, and Colorado, where builders, bankers, and realtors thrive on second homes...
...It provides upper income homebuyers with a tax shelter, encouraging them to buy bigger, and more, homes than they need...
...About two-thirds of all households own their own homes...
...In a perversion of progressive tax policy, the homeowner deduction gives the largest subsidy to those with the highest incomes and the most expensive homes...
...it would affect less than 2 percent of all taxpayers...
...How important is the homeowner deduction in promoting homeownership...
...Few members of Congress want to offend these generous campaign contributors or be labeled as anti-homeownership...
...And it certainly fueled the past decade's wave of housing speculation and the conversion of affordable apartments into expensive condominiums, promoting the gentrification of many urban neighborhoods...
...The federal tax code allows homeowners to deduct all property tax and mortgage interest from their income taxes...
...In addition, the housing industry has recently helped create a front group, called the United Homeowners Association, to lobby to protect the homeowner deduction...
...The JTC projects that this subsidy will reach $65.2 billion by 1995...
...About one-third of this year's $47 billion homeowner subsidy goes to the 3.8 percent of taxpayers with incomes over $100,000...
...As a result, more than 80 percent of households with incomes above $200,000 receive a homeowner tax break, while less than 1 percent of households below $10,000 get this subsidy...
...Since 1980, housing assistance has been slashed by 73 percent (from $33 billion to $9 billion, the largest cut of any domestic program), while the homeowner deduction more than doubled (from $22 billion to $47 billion...
...There is a growing consensus that the nation must relieve the suffering of the homeless—and assist the millions of other poor and working-class families who cannot afford market-rate rents or home prices...
...Indeed, this approach would help shift the discussion of federal housing policy from its current image as a "social welfare" program to the more mainstream perspective of being a way to stimulate economic recovery...
...Let Congress, housing experts and developers debate how best to spend the money—rent vouchers, housing fix-up, or new subsidized homes—in a cost-efficient way...
...Housing activists, of course, believe that any tax savings from reforming the homeowner subsidy should be targeted for low-income housing...
...The housing industry argues that the homeowner tax break is the linchpin of the American Dream...
...Eliminate deductions for second homes...
...This amount would provide rent subsidies for about fifty poor tenants...
...When it goes for castles, I do...
...on behalf of the housing industry, pledging their support for the existing homeowner tax break...
...This proposal would add only about $300 million annually in new federal tax revenues...
...The CBO estimated it would generate an additional $1.7 billion in 1993...
...The Washington Post reported that John D. (Jay) Rockefeller of West Virginia receives a tax subsidy worth about $223,000 a year on his $15 3 million Washington mansion...
...The CBO reforms eliminate the subsidies for the wealthy and yield substantial tax savings (thus helping reduce the deficit), but they do nothing to expand homeownership or otherwise meet the housing needs of the nonaffluent...
...This homeowner deduction will cost the federal government over $47 billion in 1991, according to a new Joint Taxation Committee (JTC) analysis of "tax expenditures...
...Without it, they claim, many Americans could not afford to purchase a home...
...The Congressional Budget Office (CBO) has recommended two options that preserve the benefits for the broad middle class, close tax loopholes for the wealthy, and generate significant tax savings...
...It thus would be much more efficient and more fair than the current approach...
...Reforming the homeowner tax break will require Congress to overcome powerful political obstacles, especially the real estate lobby...
...Moreover, by increasing the effective demand for homes by poor and working-class families, a homeowner tax credit system would actually help the homebuilding industry (as well as brokers and mortgage lenders), and thus create jobs, and add to local tax bases...
Vol. 39 • January 1992 • No. 1
