Almost a decade removed from the foreclosure crisis that began in 2008, the nation is facing one of the worst affordable-housing shortages in generations. The standard of “affordable” housing is that which costs roughly 30 percent or less of a family’s income. Because of rising housing costs and stagnant wages, slightly more than half of all poor renting families in the country spend more than 50 percent of their income on housing costs, and at least one in four spends more than 70 percent. Yet America’s national housing policy gives affluent homeowners large benefits; middle-class homeowners, smaller benefits; and most renters, who are disproportionately poor, nothing. It is difficult to think of another social policy that more successfully multiplies America’s inequality in such a sweeping fashion.
Consider Asare and Diaz. As a homeowner, Asare benefits from tax breaks that Diaz does not, the biggest being the mortgage-interest deduction — or MID, in wonk-speak. All homeowners in America may deduct mortgage interest on their first and second homes. In 2015, Asare and Jean-Charles claimed $21,686 in home interest and other real estate deductions, which saved them $470 a month. That’s roughly 15 percent of Diaz’s monthly income. That same year, the federal government dedicated nearly $134 billion to homeowner subsidies. The MID accounted for the biggest chunk of the total, $71 billion, with real estate tax deductions, capital gains exclusions and other expenditures accounting for the rest. That number, $134 billion, was larger than the entire budgets of the Departments of Education, Justice and Energy combined for that year. It is a figure that exceeds half the entire gross domestic product of countries like Chile, New Zealand and Portugal.
OSHEA SAYS: ‘‘Right now, we can’t even come up with $1,490 for our monthly rent. Every time our tax returns come through, we have to pay off the car, catch up on rent, buy food — by the time we’re done, there isn’t anything left to set aside. We talk about wanting to get our credit score recovered. Patricio was out of work for seven or eight months, and that ruined our credit. Outside of God providing a way, there really isn’t a way to get out of this situation. I don’t see it.’’
Recently, Gary Cohn, the chief economic adviser to President Trump, heralded his boss’s first tax plan as a “once-in-a-generation opportunity to do something really big.” And indeed, Trump’s plan represents a radical transformation in how we will fund the government, with its biggest winners being corporations and wealthy families. But no one in his administration, and only a small (albeit growing) group of people in either party, is pushing to reform what may very well be the most regressive piece of social policy in America. Perhaps that’s because the mortgage-interest deduction overwhelmingly benefits the sorts of upper-middle-class voters who make up the donor base of both parties and who generally fail to acknowledge themselves to be beneficiaries of federal largess. “Today, as in the past,” writes the historian Molly Michelmore in her book “Tax and Spend,” “most of the recipients of federal aid are not the suspect ‘welfare queens’ of the popular imagination but rather middle-class homeowners, salaried professionals and retirees.” A 15-story public housing tower and a mortgaged suburban home are both government-subsidized, but only one looks (and feels) that way. It is only by recognizing this fact that we can begin to understand why there is so much poverty in the United States today.
When we think of entitlement programs, Social Security and Medicare immediately come to mind. But by any fair standard, the holy trinity of United States social policy should also include the mortgage-interest deduction — an enormous benefit that has also become politically untouchable.
The MID came into being in 1913, not to spur homeownership but simply as part of a general policy allowing businesses to deduct interest payments from loans. At that time, most Americans didn’t own their homes and only the rich paid income tax, so the effects of the mortgage deduction on the nation’s tax proceeds were fairly trivial. That began to change in the second half of the 20th century, though, because of two huge transformations in American life. First, income tax was converted from an elite tax to a mass tax: In 1932, the Bureau of Internal Revenue (precursor to the I.R.S.) processed fewer than two million individual tax returns, but 11 years later, it processed over 40 million. At the same time, the federal government began subsidizing homeownership through large-scale initiatives like the G.I. Bill and mortgage insurance. Homeownership grew rapidly in the postwar period, and so did the MID.