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Subsidizing the Donor Class

March 8, 2011 - by Donny Shaw

Yesterday I wrote about a bill scheduled for a vote this week that would eliminate a program that provides bridge loans to unemployed homeowners to help them avoid foreclosure. The program has $1 billion in total lending authority, and homeowners are required to pay the government back when they become employed again. House Republicans say they’re going after the program a matter of fiscal responsibility. But here’s the thing — at the same time that they’re trying to cut $1 billion in loans for the unemployed, they’re fighting to protect a more than $100 billion program that provides tax breaks to homeowners, with benefits flowing overwhelmingly and disproportionately to the wealthy.

The mortgage interest deduction is the single largest housing program in the U.S. According to the Joint Committee on Taxation, in 2010 the program provided $104 billion in tax break to homeowners, with more than half of the benefits going to the 10% of taxpayers who earn more than $100,000 per year. This is because, among other reasons, it’s designed as a deduction, so, for example, homeowners in the 35% bracket pay an after-tax cost of $65 on each $100 borrowed while those in the 10% bracket pay $90 per $100. Currently, homeowners can get this deduction on mortgages worth up to $1 million on both primary and secondary homes.

The Bowles-Simpson deficit commission and many tax experts from across the political spectrum have suggested repealing or reforming this program as part of their deficit-leveling recommendations. But Congress seems extremely uninterested in touching it, even in just making it more fair by lowering the mortgage cap to $500,000, removing eligibility for second homes, or leveling out its benefits for all income earners.

Case in point: H.Res.25, a bill “expressing the sense of the Congress that the current Federal income tax deduction for interest paid on debt secured by a first or second home should not be further restricted.” This bill has been steadily gaining co-sponsors, and it’s a remarkably mixed bunch. Of the 52 co-sponsors, 47% are Democrats. That level of bipartisanship is virtually unheard of for anything in Congress more significant than naming post offices or honoring sports teams.

To understand what’s going on here, consider that the main sponsor for the proposal, Rep. Gary Miller [R, CA-42], represents some of the ritziest neighborhoods of Orange County. Miller’s district has a median income of nearly twice the national average. These are the people who benefit disproportionately from the deduction, and across all congressional districts the people benefiting disproportionately from the deduction are the ones who have money to donate to their members of Congress. The unemployed, on the other had, don’t have money to spend on politics, and that’s probably part of the reason why Congress is moving to eliminate $1 billion in aid for unemployed homeowners but protect $104 billion for primarily the wealthy.

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