Misdirected Investments: How the MID Drives Inequality and the Racial Wealth Gap

NLIHC, Representative Ellison, and Senator Merkley Host Briefing on Tax Reform and Misdirected Investments

On October 17, 2017, U.S. Representative Keith Ellison (D-MN), U.S. Senator Jeff Merkley (D-OR), and NLIHC hosted a congressional briefing to discuss the benefits of reforming the mortgage interest deduction (MID) and misdirected investments.

The focus was reforming the MID through tax reform and why Congress should reinvest savings generated from MID reform into housing affordable for people with extremely low incomes.

At the briefing, the National Low Income Housing Coalition (NLIHC) and the Institute on Assets and Social Policy (IASP) at Brandeis University announced the release of a new policy report, Misdirected Investments: How the Mortgage Interest Deduction Drives Inequality and the Racial Wealth Gap.

The report explores how the MID promotes racial and economic inequality by benefitting mostly wealthy, white households and represents a loss of $8 billion in housing investment for families of color.

  • White households receive nearly 78% of the MID’s benefits even though they account for only 67% of all households.
  • African American and Latino households each account for approximately 13% of the nation’s households, but receive only 6% and 7% of MID benefits.
  • If the distribution of MID benefits was racially equitable, African-American would receive $4.8 billion in additional financial benefit and Latino households $4.1 billion more.

The MID is an annual federal expenditure of $70 billion per year that primarily goes to higher income homeowners. White households are more likely to benefit from the MID because they are more likely to own a home, have larger mortgages, and earn higher incomes.

Renters receive no benefit from the MID, and many lower and moderate income homeowners do not benefit from the MID because they claim the standard deduction.

The report proposes reforms that would provide greater equity in the distribution of federal housing expenditures. These reforms include:

  • converting the deduction to a tax credit, which would provide all mortgaged homeowners with tax relief regardless of their income, and
  • lowering the cap on the amount of mortgage eligible for a tax break from $1 million to $500,000.
  • The savings from these two reforms should be invested in housing for the lowest income households most in need of assistance through solutions like the national Housing Trust Fund, Housing Choice Vouchers, or a renter’s tax credit.

At the briefing, NLIHC President and CEO Diane Yentel outlined the NLIHC-led United for Homes campaign that calls for a re-balancing federal housing investments through MID reform.

She emphasized that the current Republican tax plan to increase the standard deduction would make the MID even more regressive than it is today.

Misdirected Investments Report

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