Deductio Ad Absurdum
Atlas, Peter Dreier and John
Deductio Ad Absurdum Want a government subsidy of $225,000 a year? Buy a mansion. by Peter Dreier and John Atlas When President Bush unveiled his new housing program last November at a...
...No one wants to repeal the entire homeowner tax deduction...
...It provides upper income home buyers with a tax shelter, encouraging them to view homeowning primarily as an investment, and to buy bigger homes, and more homes, than they need...
...By the time Brookings Institution economists began suggesting in the 1960s and 1970s that the homeowner deduction was inequitable and unnecessary, real estate lobbyists were already declaring it sacrosanct...
...The major political obstacle to reform is the real estate lobby—particularly the naPeter Dreier is director of housing at the Boston Redevelopment Authority and a board member of the National Low-Income Housing Coalition...
...If the average American doesn't mind being suckered, why should policy makers care...
...Their political action committees have a vast local network and deep pockets...
...Two proposals make the most sense politically and economically...
...Today, less than one-third of all low-income Americans receive any kind of housing subsidy...
...Neither Canada nor Australia have a homeowner deduction, and the homeownership rates are roughly the same as the U.S...
...In the postwar period, the rate of home ownership in the U.S...
...Both close tax loopholes for the wealthy...
...For example, Senator John D. (Jay) Rockefeller of West Virginia will receive a tax subsidy worth about $233,000 per year just on his $15.3 million Washington mansion...
...Every president since Herbert Hoover has made home ownership a fundamental part of this nation's promise of prosperity...
...This amount is more than four times Bush's HUD budget for low-income housing...
...This amount would provide rent subsidies for about 5,000 low-income tenants—roughly the size of the homeless population in the nation's capital...
...This is the lowest level of any major industrial nation.What reporters downplayed or ignored was the president's brief comment confirming his continued support for the homeowner tax deduction—a $34 billion annual federal subsidy that primarily benefits the wealthy...
...In fact, 245 members of the House of Representatives last year endorsed a resolution, sponsored by Rep...
...Marge Roukema on behalf of the housing industry, pledging their support for the existing homeowner tax break...
...Most of that increase was due to postwar federal housing programs, particularly longterm, low-interest, high leverage mortgages insured by the Federal Housing Administration or guaranteed by the Veterans' Administration...
...What's all the fuss about...
...The impact of the homeowner deduction in promoting home ownership is debatable...
...When it goes for castles, I do...
...A Hard Tax on Hard Work Even while the government is giving more money to the rich for their houses, it is taking more money away from working people...
...I have no objections when the deduction goes for houses," says Rep...
...Only in the past decade—as housing prices skyrocketed, household incomes failed to keep pace with inflation, and federal housing programs were cut—has home ownership declined...
...income distribution less rather than more equal...
...Eliminating this tax break for the rich—while preserving it for the middle-class—could provide substantial money to finance housing assistance for lowincome families, reduce the deficit, or fund other needed government programs...
...They should care because Congress and the president are supposed to be looking after the public interest— not figuring out how best to fool it...
...John Atlas is president of the National Housing Institute...
...Supply-side" economics advertised tax cuts, but, in fact, the tax burden as a whole has not changed over the eighties...
...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...
...As a result, as Brookings Institution economist Joseph Pechman, the longtime dean of experts, wrote shortly before his death last year, the tax system actually makes the U.S...
...Contrast that muted reaction with all the hoopla—the chilling denunciations of the "politics of envy"—raised last fall, when House Democrats toyed with the idea of raising marginal income tax rates on the wealthiest Americans to the same higher level already faced by families with far less income...
...These ceilings are higher than the deductions now taken by nearly all homeowners—in fact, they would affect less than one-half of 1 percent of all taxpayers...
...The housing industry argues that the homeowner tax break is the linchpin of the American dream...
...Or the fight to cut the capital gains tax paid by investors even as the payroll tax on workers rises...
...And that way, we could stop subsidizing the rich to live in castles, and help more Americans stay out of shelters...
...According to a Congressional Budget Office study, it "would retain the basic incentive for homeownership, but would not subsidize the luxury component of the most expensive homes and vacation homes...
...Despite dire warnings from the real estate lobby, neither proposal—singly or in combination—will have a significant impact on the homebuilding industry...
...If the 3.9 million taxpayers with incomes over $100,000 (3.1 percent of all taxpayers), adjusted for inflation, were no longer eligible for homeowner tax breaks, the federal government would net an additional $11.6 billion a year...
...Sam Gibbons, senior Ways and Means Committee member...
...If the cut-off started at $200,000 (1 million taxpayers, representing 0.8 percent of all returns), new federal revenues would total $3.7 billion...
...Few congressmen want to offend these generous campaign contributors or be labeled as anti-homeownership...
...To achieve this progressive tax reform will require Congress to overcome powerful political and ideological obstacles...
...Without it, they argue, many Americans—including many young families—could not afford to purchase a home...
...Tenants, of course, don't even qualify...
...Over 78 percent of the foregone tax revenue goes to the 15.1 percent of taxpayers who earn over $50,000...
...In other words, our nation's housing subsidies disproportionately benefit homeowners with high incomes or with more than one home...
...Especially modest given that during the Reagan years, the homeowner tax break was the only housing subsidy that did not fall to the budget axe...
...One third of this subsidy goes to the 3.1 percent of taxpayers with annual incomes over $100,000...
...Housing assistance for the poor shouldered the most severe cutbacks of any domestic programs—a 75 percent reduction from $33 billion to under $8 billion...
...And the fact is that the public has been fooled into accepting the most regressive tax structure among Western nations...
...Cheap suburban land, subsidized highway construction, and rising income all contributed to the postwar boom...
...by Peter Dreier and John Atlas When President Bush unveiled his new housing program last November at a National Association of Realtors convention, the news media focused on his plans to aid the homeless, assist public housing tenants who want to buy their apartments, and provide matching grants to cities for housing rehabilitation— an extremely modest initiative totalling about $1.2 billion per year in new federal housing funds...
...Both preserve the benefits for the broad middle class...
...If anything, the deduction has helped push housing prices artificially up, because home buyers include the value of the tax subsidy in their purchase decision...
...Second, phase out the deduction entirely for the rich...
...What to do...
...According to Marc Weiss, a Columbia University professor currently writing a book on the history of home ownership, the deduction grew almost by accident...
...What has changed is that the proportion of revenue coming from progressive income taxes has declined, while the payroll tax, which reaches only the lower part of earnings and doesn't touch investment income at all, has soared by about 25 percent...
...This, Pechman observed, is even more troubling because the distribution of income in the United States, already far more unequal than that of our leading competitors, has become substantially more so in the last 10 years...
...This will cost the federal government $34 billion in lost revenues this year alone, according to the Joint Taxation Committee...
...One half of all homeowners do not claim deductions at all...
...The homeowner tax deduction was never designed to be the costly element of housing policy that it has become...
...The real estate lobby, however, is engaged in ideological overkill...
...The following item is excerpted from a column Jodie T. Allen of The Washington Post wrote pointedly exposing this injustice: Nobody seems to complain much about the payroll tax, even though it is now a far heavier burden on the average worker than the personal income tax and a far bigger drag on industry's ability to compete in foreign markets than the corporate income tax...
...rose steadily for three decades, from 44 percent in the late 1940s to 65.6 percent in 1980...
...Recently, the Social Security payroll tax, which disproportionately hits low-income wage earners and small businessmen, was raised again...
...They would yield the federal government an additional $1.25 billion this year, according to the Joint Taxation Committee...
...There was no taxpayers' revolt last November when Congress and the administration, in a little-noted departure from the "read my lips" rule, slipped into law an added boost to this month's payroll tax hike even though it was totally unneeded to pay for Social Security benefits...
...History shows that nations that allow their wealth to become concentrated in the hands of the few prosper in neither social nor economic ways...
...The homeowner deduction is a government subsidy that goes primarily to the affluent...
...But it can be reformed so that it primarily benefits poor and middle-class home buyers, while eliminating an expensive and unnecessary tax subsidy for the rich...
...The federal tax code allows homeowners to deduct all property tax and mortgage interest from their income taxes...
...And both generate substantial tax savings...
...The affluent will continue to buy large homes, and second homes, but the prices will reflect their real market value, rather than the artificial price that includes the government subsidy...
...tional associations of realtors, homebuilders, and mortgage bankers...
...First, eliminate the subsidy for the most expensive homes and vacation villas by limiting mortgage interest deductions to $12,000 per single return or $20,000 per joint return, adjusted for inflation...
Vol. 22 • February 1990 • No. 1
