Most Americans think that federal housing assistance is a poor people's program. In fact, less than one-fifth of all low-income Americans receive federal housing subsidies. In contrast, more than three-quarters of wealthy Americans -- many living in mansions -- get housing aid from Washington.
The homeowner deduction -- which allows homeowners to deduct all property tax and mortgage interest from their federal income taxes -- will cost the federal government more than $47 billion this year alone, according to a new Joint Taxation Committee analysis of "tax expenditures." This amount is more than five times President Bush's Housing and Urban Development budget for low-income housing.
Despite this inequity, Mr. Bush's budget proposal calls for further cuts in federal low-income housing aid, while sparing the nation's largest housing subsidy that primarily benefits the rich. Eliminating this tax break for the wealthy -- while preserving it for the middle class -- could provide substantial money to finance housing assistance for low-income families.
About one-third of this year's $47 billion homeowner subsidy goes to the 3.8 percent of taxpayers with incomes over $100,000. About 12 percent of this subsidy goes to the wealthiest 1 percent of taxpayers -- those with incomes over $200,000.
Wealthy households are most likely to own homes and to itemize deductions. Half of all homeowners do not claim deductions at all. Tenants, of course, don't even qualify. As a result, more than 80 percent of households with incomes above $200,000 receive a homeowner tax break, while less than 1 percent of households below $10,000 get this subsidy. Only a quarter of the households with incomes between $30,000 and $50,000 receive any homeowner subsidy.
At the same time, as noted above, less than one-fifth of the nation's low-income households receive any federal housing assistance, live in a subsidized apartment building, receive a rent voucher or get a homeowner tax break. This represents the lowest level of any industrial nation.
Sen. John D. Rockefeller, D-W. Va., receives a tax subsidy worth about $223,000 a year on his $15 million Washington mansion.
Low-income subsidies -- such as public housing -- are much more visible than the hidden tax subsidies to the wealthy. So while the nation's housing programs for the poor have been slashed, few Americans worry about getting the wealthy off welfare.
The Bush administration has continued the Reagan policy of dismantling federal housing programs for the poor, while preserving the homeowner subsidy for the rich. Since 1980, housing assistance has been slashed by 73 percent (from $33 billion to $9 billion, the largest cut of any domestic program), while the homeowner deduction more than doubled (from $22 billion to $47 billion). This will keep spiraling.
The homeowner tax deduction was never designed to be the costly element of housing policy that it has become. But the housing industry argues that the homeowner tax break is the linchpin of the American Dream. Without it, they claim, many Americans could not afford to purchase a home.
Few members of Congress want to offend such generous campaign contributors as the powerful real estate lobby or be labeled as anti-home-ownership. More than half the members of the House have endorsed a non-binding resolution, sponsored FTC by Rep. Marge Roukema, R-N.J., on behalf of the housing industry, pledging their support for the existing homeowner tax break. Mr. Bush also has vowed to defend the existing homeowner subsidy.
How important is the homeowner deduction, anyway, in promoting homeownership? Neither Canada nor Australia have a homeowner deduction, and their homeownership rate is about the same as the United States. About two-thirds of all households own their own homes.
If anything, the deduction has helped push housing prices up, because home buyers include the value of the tax subsidy in their purchase decision. It provides upper-income buyers with a tax shelter, encouraging them to buy bigger, and more, homes than they need. And it fueled the past decade's wave of housing speculation and the conversion of affordable apartments into expensive condominiums, promoting the gentrification of many urban neighborhoods.
What to do? Three options make the most sense. They each preserve the benefits for the broad middle class, close tax loopholes for the wealthy and generate significant tax savings.
* Eliminate deductions for second homes.
True, this would add only about $300 million annually in new federal tax revenues. And it would run into a political buzz saw, particularly from members of Congress from vacation-industry strongholds where builders, bankers and Realtors thrive on second homes. But it seems fair when so many Americans can't even afford to buy their first home.
* Limit mortgage interest deductions to $12,000 per single return or $20,000 per joint return, adjusted for inflation.
These ceilings are higher than the deductions now taken by nearly all homeowners; it would affect less than one-half of 1 percent of all taxpayers. According to a Congressional Budget Office study, it "would retain the basic incentive for homeownership, but would not subsidize the luxury component of the most expensive homes and vacation homes." Last year, the CBO estimated it would generate an additional $1.25 billion annually. The figure would be even higher now.
* Phase out the deduction entirely for the rich.
If the 1.1 million taxpayers with incomes over $200,000 were no longer eligible for homeowner tax breaks, the federal government would net $5.4 billion more a year.
Despite dire warnings from the real estate lobby, none of these proposals would have a significant impact on homeownership. The affluent will continue to buy large homes and second homes, but the prices will reflect their real market value, rather than the artificial price that includes the government subsidy.
Of course, even if one of these options managed to pass Congress, many budget-cutters would want to use the increased revenue to reduce the deficit. But low-income housing should have the first claim on these funds.
There is a growing consensus that the nation must relieve the suffering of the homeless -- and assist the millions of other poor and working-class families who cannot afford market-rate rents or home prices. Let Congress, housing experts and developers debate how best to spend the money -- rent vouchers, housing fix-up, or new subsidized homes -- in a cost-efficient way. But let's no longer argue whether we can afford to do so. Let's stop subsidizing the rich to live in mansions, and help the poor stay out of shelters.
Peter Dreier is director of housing at the Boston Redevelopment Authority and a National Housing Institute board member. John Atlas is president of National Housing Institute, a think tank based in Orange, N.J. They wrote this commentary for Newsday.