"If you were spending $400 billion a year on social programs, would you give half of that to the wealthiest 5 percent of Americans? We didn't think so. But that is the perverse result of the stealthy spending conducted through the federal tax code."
So begins an editorial in today's Washington Post. The editors are responding to a new report from CFED and the Annie E. Casey Foundation, Upside Down. Similar in many ways to The Assets Report, Upside Down looks at funds the federal government devotes to asset building activities. While the method of counting is different (Upside Down uses a more conservative metric) the upshot of both reports is the same: spending on asset building through tax expenditures is geared wildly toward upper-income individuals. The unfortunate outcome of this "upside down" delivery model is that our tax code reinforces inequality, rather than fighting against it.
Where Upside Down really distinguishes itself is in bringing home what these policies mean to a family, and what they mean overall to our society. Here's the Post's take on the first part:
Low-income households who do not earn enough to itemize deductions don't get the benefit. A middle-class household earning $50,000 a year "receives less than $500 in benefits" from tax breaks for mortgages, property taxes and investment income, the report found. "By contrast, taxpayers bringing in more than $1 million enjoy $95,820 in annual support through mortgage and property tax deductions and investment tax breaks," it said.
And the second:
Yes, higher-income households pay higher rates and a greater share of taxes. But they benefit disproportionately, even given this bigger share. According to the report, "While the overall share of the tax bill for the top 1 percent of earners was 27.7 percent in 2005, their share of total benefits from asset policies that same year was over 45 percent."
So there you have it, we spend billions promoting asset building for the wealthy, and pennies for everyone else. It's no wonder that inequality is so prevalent in the US. The Post concludes that we need to revisit the tax code and potentially restructure it. Kudos to them for considering this report and its implications, and kudos to Casey and CFED for their work in illuminating this pernicious issue. When it comes time to look at how best to reshape the asset building budget, we've got plenty of ideas.