Rich, mostly White homeowners are officially on welfare.
I know. I was as surprised as you are.
But millions of affluent homeowners filed their taxes this week and took advantage of changes to the home mortgage interest deduction. And this popular deduction is basically a form of welfare.
In fact, I’d argue this deduction ends up being a stealth school voucher for mostly White families.
It’s Always a Race Thing
I’m reminded of the 1950s practice of redlining neighborhoods out of mortgage financing, which supported the White middle class while leaving out working class people of color. Similarly, the home mortgage interest deduction gives cash back to affluent, mostly White people while leaving out most homeowners, especially those in neighborhoods of color.
And the new tax law is expected to have huge benefits for wealthier households. The average benefit to the top 20 percent of income-earning homeowners has increased from $3,480 to $9,010. That’s a big jump, affecting about 9 million households.
Here’s how it works. For new mortgages on first or second homes up to $750,000, homeowners are able to deduct a portion of their mortgage interest from their taxable income.
Notably, only taxpayers who itemize their deductions get this tax break, which means less than half of all homeowners take the deduction. Those who do are not only much wealthier than average—they’re overwhelmingly White.
Plus, the new tax law increases the standard deduction and caps the benefit of deductions for state and local taxes. As a result, the new law is expected to cut itemizers by more than half—from 46 million to 21 million.
A Tax Break That’s Actually a School Voucher
The way I see it, this deduction acts as a sneaky school voucher, giving homeowners a little more financial breathing room to buy a slightly bigger home, in a slightly better school district.
Using that financial edge to buy a larger or fancier home is well-known and frequently discussed in the media. And anecdotally I know of families who have factored in the home mortgage interest deduction to ensure they could buy homes in a better school district. Picking a neighborhood with good schools may be the best decision parents can make for their kids, and the mortgage interest deduction gives them a little extra edge with that.
Renters don’t get this advantage.
If I’m renting, my landlords will set my rent based in part on the interest they are paying on the mortgage on the property. The landlords will not get a mortgage interest deduction, so the rent the landlord charges is higher. So, I’m paying rent and I don’t get any tax benefit. Plus, my rent is higher because my landlord cannot get a tax benefit and the cost of that higher tax gets passed on to me in the form of higher rent.
And of course people of color are far more likely to be renters.
In 2016, the home mortgage interest deduction was ranked the fifth most-expensive tax break, costing the federal government $77 billion. Many economists and policymakers have argued to eliminate the deduction and replace it with help for lower-income homeowners and renters. But there has been virtually no discussion about the reality that this deduction is another element of the many policies that lock poor people and people of color out of high-quality schools.
It’s time for us to start talking.
Here’s an Idea
If we’re going to continue to hand already-wealthy people money to help pay for their homes in better school districts, then in the interest of fairness, let’s create a $7,000 school voucher for all the families who don’t have access to the deduction.
We would not be taking any money from public schools. Rather, we would take the $77 billion in tax money that currently goes back to homeowners who get the mortgage interest deduction, and create federal school vouchers for all who were denied this tax benefit.
What’s that? You don’t believe in school vouchers? Think they’re destroying public education? Think they’re not equitable?
Well, if you took that home mortgage interest deduction, you should think hard about your privilege before you argue against my proposal.