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Federal Asset-Building Budget Inadequate, Counterproductive
By Carol Wayman on 03/21/2011 @ 04:00 PM
Last Tuesday marked the launch of the new Moment of Truth Project – an effort led by the Fiscal Commission Co-Chairs Erskine Bowles and Senator Alan Simpson that is designed to foster honest and candid discussion about the nation’s fiscal challenges, the difficult choices that must be made to solve them and the potential for bipartisan compromise that can move the debate forward and help set our country on a sustainable path.
During the event a number of Senators delivered enlightening and impassioned remarks about the need to tackle the daunting challenges of our national debt and deficit with every tool at our disposal, including the tax code. In his statement, Senator Crapo said “the [current] tax code couldn't be made less fair or more complex or make it harder to compete in the global world economy.”
Senator Crapo and his colleagues are completely accurate that “everything must be on the table to address our budget crisis.” Federal tax expenditures are larger than the entire budget. As the Executive Director of the National Commission on Fiscal Responsibility and Reform, Bruce Reed, said, “There are more holes than cheese in our national budget.”
In Saturday’s Washington Post, an article questioned the impact and continuation of the mortgage interest deduction. CFED is thrilled that tax expenditures are becoming less opaque and unquestioned.
Last fall, CFED and the Annie E. Casey Foundation published Upside Down: The $400 Billion Asset-Building Budget. The report, discussed in an editorial in The Hill, urges Congress to take a serious look at the more than $1.1 trillion in tax expenditures. While there are a number of reasons tax expenditures for asset-building are alarming, a few of the findings enumerated in Upside Down are particularly chilling. Among them:
- More than half the benefits went to the wealthiest 5% of taxpayers in fiscal year 2009, and largely missed the asset-poor majority in this country. The wealthiest Americans (those earning over $1 million annually) receive more than $95,000 in tax benefits while middle income families receive a few hundred dollars and poor families relying on public benefits actually face penalties for saving.
- Eight out of 10 of the wealthiest families saved approximately one-third of their household income in 2009, while a full one-third of low-income households earned too little to make ends meet, much less save for the future.
- About 80% of the value for mortgage and property tax deductions accrued to the top 20% of taxpayers. In fact, many homeowners don’t take the mortgage deduction because they do not earn enough income or incur enough of a tax liability to warrant itemizing their deductions.
Some would argue that higher-income households should receive more of a tax break because they face higher income tax rates and pay a larger proportion of all taxes. But this line of argument is flawed. The data show that top earners receive benefits from current asset policies at levels that exceed their tax liability. While the overall share of the tax bill for the top 1% of earners was 27.7% in 2005, their share of total benefits from asset policies that same year was over 45%. In addition, we have a progressive tax system, those that benefit more pay more. Existing tax expenditure policies undercut that goal.
Frankly, these findings speak volumes about the state of unfair and regressive tax expenditures. Many legislators own constituents could benefit from a recalibration of these expenditures. For example, in North Dakota, only 14% of tax filers take the mortgage interest deduction, the lowest percentage in the nation. They would be well-served by replacing the mortgage interest deduction with a standard housing credit.
In short, this upside-down set of subsidies would have a perverse enough effect on its own, but it compounds wealth disparities that have reached their highest level in generations, and that dwarf the income disparities that we are more accustomed to reading about. A critical evaluation of these subsidies must be part of the repair of our fiscal budget.
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