Photo by Cheryl Jones from the Grapevine Photo Project
CWRU: Is the Mortgage Interest Deduction Fair?
The students of CWRU are doing a project in which all the incoming freshmen are reading the same book. The Common reading program is centered around Justice: What's the Right Thing to Do? by Michael Sandel. As part of this project they are collecting donations and socks to distribute to homeless people in Cleveland. NEOCH is assisting with this project by putting together a section of our website that provides additional information and resources in the community. One aspect of this project is to prompt the students to begin to talk about social justice issues. We have put together a series of social justice questions around housing and homelessness. We hope to solicit discussion here on the blog and in the local community with comments and debate.
Question: Is it just that the U.S. Government gives a huge mortgage interest deduction of $110 billion per year to home owners while only $4.79 billion is spent on targeted homeless programs in the United States?
Sometime during what historians call the Progressive Era in this country, the government determined that homeownership should be a part of the American dream, and they decided to try to make that dream attainable for everyone. Since then, the government has instituted a plethora of policies in the name of “increasing homeownership.” What most people either forget or choose to ignore, however, is that while the middle-class has consistently expanded over the last century, those left behind, those stuck in the trap of poverty and homelessness, have had precious few bones thrown their way. If the government truly wants to help those most in need with the dream of owning their own house, it should reexamine how it currently spends much of its discretionary money.
The $110 billion that is spent (or more accurately, not collected) per year in mortgage interest deductions is consistently advertised as helping those in the lower-income brackets afford to own a home by allowing them to deduct mortgage interest payments from their income taxes. However, if this is truly the government’s aim, helping lower-income homeowners, they are largely wasting their money. This is because the vast bulk of mortgage interest deductions come from those with the highest incomes. According to the Tax Foundation, those earning in excess of $75,000 per year account for 53.8% of mortgage interest deductions claimed, while accounting for just 16% of all tax returns filed. In contrast, those earning less than $30,000 per year account for just 9.3% of mortgage interest deductions claimed while accounting for 51.9% of all tax returns filed.
There are several reasons why mortgage interest deductions disproportionately benefit the wealthy, the biggest being that in order to receive a mortgage interest deduction, one must itemize their tax return, which many lower-income taxpayers do not do because the incentive for doing so is much less for them than for those in higher income brackets. The bottom line is that if this is a way for the government to “help out” lower-income homeowners, it isn’t really working. In fact, all it is doing is accounting for lost revenue from wealthier Americans, those who can afford to own a house without benefiting from such deductions. Now consider the $4.79 billion that is spent annually on targeted homeless programs. This is such a small number compared to the government’s overall budget that it is laughable. And yet, compared to tax breaks that benefit the wealthy, it has been proven over and over that such direct spending on lower-income, poverty stricken populations is much more effective in helping the overall strength of the economy. This means that the government can expect to get more back for its money.
So why is it that the government spends so little money on homeless services? It’s not really surprising when you consider that compared to middle-class Americans, homeless people have so little political clout, and thus are often ignored by politicians. That means that from a government purporting to do everything in its power to help those in need, homeless people aren’t receiving their fair share of the pie. So no, it isn’t just that while homeowners receive $110 billion per year in mortgage-related tax breaks, homeless services agencies are left scuffling with their meager $4.79 billion. The reasons listed above are largely economic, but it also goes against every moral and ethical obligation that we as a society should feel to completely ignore those of us in the unfortunate situation of not being able to afford a home.
by Sam the Intern
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