Progressive Ponderings: Government Subsidies
"Progressive Ponderings"11/20/2007
By Joe Meyer
November 19, 2007
A common myth in American thinking is that homelessness is a longstanding American problem.
History corrects this myth pointing to increased urbanization and the depression of the 1920s and '30s as its American origin. After the depression and World War II Congress enacted legislation providing for FHA Loans (1930s) and GI Loans (1944) giving federal assistance to needy people in securing home loans which helped reduce homelessness. Later, welfare housing projects were built which qualified people for rent subsidies.
While some of these programs survive, most are just a shell of their former selves. Attacks on government assistance, begun in the 1980s, and continued through both Republican and Democratic administrations and Congressional majorities, have twisted the American psyche to believe that need is always self-inflicted and therefore government assistance is enabling.
While we have greatly reduced and eliminated many subsidies for the less fortunate we continue to give generous housing subsidies to nearly all homeowners, including the extremely rich. Schedule 1040-A of the IRS Income Tax form lists deductions that can be taken before the taxable income is figured. Deductions include charitable contributions, other taxes, interest paid on home mortgages, medical expenses, and work-related expenses. For many (most) people the largest of these deductions is the interest on their homes. Real estate taxes are also among the largest deductions.
Two examples estimate the amount of these tax-saving subsidies: • $150,000 mortgage times 5.5% interest times 25% income tax rate plus $1,500 real estate tax = $3,500 subsidy. • $300,000 mortgage times 6% interest times 35% income tax rate plus $3,000 real estate tax = $9,300 subsidy.
Generous Uncle Sam even allows those needy among us with two or more homes to deduct these expenses on a second home. Interest on loans for other items is not deductible so "the market" has enticed homeowners to add the cost of home improvements, vacations, education, boats, etc. to one's mortgage and let the IRS subsidize these also. All this is perfectly legal.
What is the cost to Uncle Sam? In a recent year it amounted to over $80 billion. The amount of this subsidy flowing to the highest quintile of taxpayers was 82%. The second richest quintile enjoyed 15% of this subsidy. That left 3% for the bottom three quintiles. There is no top dollar limit for the highest among us.
There is no such program for renters. They may claim some benefit from this government largesse by using the standard deduction on their 1040.
Although this system for subsidizing home ownership could use some tweaking, it has allowed many in our society to own homes who might otherwise find it cost-prohibitive.
Medical savings accounts, created as a solution to our healthcare crisis, have similar tax opportunities. Those who can afford these accounts get tax subsidies for medical costs.
My objectives are: 1) To alert those of us scapegoating the homeless and less fortunate for their reliance on government that they are not alone. We "blamers" accept this housing subsidy as a right and would revolt if politicians tried to take it away. 2) To examine "framing" issues. The Republicans are very adept at this – "Welfare queens," "Government is not the solution, government is the problem," "support our troops."
If progressive politicians are going to not only win public office, but also win the public discussion, reframing the issues in an honest and persuasive manner will need to happen. "All Americans receive government subsidies, with the wealthy usually claiming the larger share." This example of "framing" brings facts and truth to the disguised issue that lower classes are the free-loaders.
Framing could cure many social injustices and provide citizens a real look at progressive America.