Average Tax Expenditure for Mortgage Interest Deductions, by Income Category, Fiscal Year 2006
Homeownership may be the apotheosis of achieving the American Dream. But the true test of whether the American Dream is alive and well is whether economic mobility is alive and well. The fact is that 42 percent of children born to parents in the bottom income quintile and 39 percent of children born to parents in the top quintile will end up in those same income brackets a generation later.1 Economists call this phenomenon “stickiness at the ends.” In other words, for a large group of people at the top and bottom of the economy, economic potential is set at birth. The American Dream of those at the bottom is too often just a dream.
Rather than working to lessen these tendencies and promote greater mobility, the U.S. tax code in effect maintains the status quo. Tax policy offers many incentives for people to act in ways considered socially desirable and to achieve their own financial security—to own a home, attend college, save for retirement, start a business, etc. Most incentives in the tax code come in the form of deductions, exemptions, or exclusions that lower the amount of taxes one owes. Most low-income families, however, do not earn enough to have tax liability and therefore cannot take advantage of these incentives. This results in tax policy that perpetuates inequality by rewarding behavior that generates more financial security for those who already have it, while excluding those who need it most.
For example, the tax code is the primary vehicle for government support to homeowners. In 2006, the government provided $157.5 billion in homeownership assistance. Except for $2.6 billion in outlays for public housing programs, this money was spent on tax subsidies, primarily the home mortgage interest deduction. Most households that benefit from the home mortgage interest deduction have incomes of more than $100,000, and are the most likely to be homeowners regardless of government incentives.2
In This Section
Footnotes
- Isabel Sawhilll, Julia Isaacs and Ron Haskins (February 2008), Getting Ahead or Losing Ground: Economic Mobility in America, Brookings Institution. http://www.economicmobility.org/assets/pdfs/PEW_EMP_GETTING_AHEAD_FULL.pdf [back]
- Joint Committee on Taxation (January 2005), Estimates of Federal Tax Expenditures for Fiscal Years 2005-2009, House Committee on Ways and Means and Senate Finance Committee. [back]
Issues
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