Affordable Housing, Community Development, Housing Policy Briefs

The Silent Subsidy


Harvard professor and Pulitzer Prize-Winning Author Matthew Desmond recently published an article in the New York Times exploring the ways in which federal tax code is positioned to benefit the upper middle- to upper-class. The biggest benefit, as Desmond describes, comes from the mortgage-interest deduction (MID). MID allows all homeowners to deduct mortgage interest on their first and second homes, up to $1 million of deductible mortgage debt for primary homes, and $100,000 for second homes.

Based on the structure of the tax system, high-income earners are disproportionately advantaged by this deduction. In order to claim the deduction, the homeowner must itemize their deductions. Since most taxpayers do not itemize their deductions unless they make large enough incomes to justify the itemization, MID results in large tax breaks for wealthier households. To that end, Desmond argues that the MID operates as a homeowner subsidy for the wealthy, citing that in 2015 alone $71 billion was dedicated to MID.

Desmond contrasts the benefits of MID with rental households, who do not receive the same type of deduction. Throughout the country homeownership is a driver of the racial wealth gap. With housing being considered affordable when it amounts to 30 percent or less of a household's income, Desmond reports that more than half of all poor renting families in the United States spends more than 50 percent of their income on housing costs, and over a quarter of those households spend in excess of 70 percent of their income on housing costs. 

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