Who benefits from tax subsidies for home ownership? The rich.

In 2016, about one-fifth of households will benefit from home ownership-related tax deductions. However, over 85 percent of those in the top 1 percent will enjoy these tax breaks while fewer than one-in-20 in the bottom 40 percent will benefit.

Larry Downing/Reuters/File
A real estate sign advertising a new home for sale is pictured in Vienna, Va.

For decades, Congress has generally used tax subsidies and direct spending to encourage home ownership. For example, the tax code allows itemizers to deduct property taxes and home mortgage interest.  The Treasury Department concluded that housing-related tax expenditures will cost approximately $95.5 billion in 2016.  And the Tax Policy Center estimates that these subsidies mostly benefit high-income taxpayers. 

In 2016, about one-fifth of households will benefit from these deductions. However, over 85 percent of those in the top 1 percent will enjoy these tax breaks while fewer than one-in-20 in the bottom 40 percent will benefit.

Tax Policy Center

The value of these subsidies also rises with income. The lowest-income 20 percent of households will effectively get no benefit from the deductions for property taxes and mortgage interest. Middle-income households will see an average tax cut of $170, or 0.3 percent of their after-tax income. In contrast, the top 20 percent of the income distribution receives an average benefit of 1.2 percent of after-tax income, or about $2,800. The value of these subsidies as a share of after-tax-income declines for the highest income households in part because the mortgage deduction is capped at $1 million and because of other deduction caps in the tax code.

Tax Policy Center

Still, high-income households benefit from home ownership far more than low- and middle-income households. Some reasons: Low-income households have much lower rates of home ownership  and are significantly less likely to itemize (in part because they are not homeowners). Finally, because these tax preferences are designed as deductions rather than credits, they favor high-income taxpayers who are subject to higher tax rates (a deduction is worth 39.6 percent to a top bracket taxpayer, but only one-quarter as much to someone in the bottom tax bracket).

These findings are consistent with earlier analysis by TPC and others. Instead of turning renters into homeowners, homeownership tax expenditures encourage middle- and upper-income individuals to purchase more expensive homes, take on more debt, or buy second homes. The Tax Policy Center previously analyzed options to reform the home mortgage interest deduction  to better target this subsidy to those who need it the most.  

Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution. This article first appeared on TaxVox.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.