With President Obama touting the "Buffett Rule" to increase the tax rate on the highest earners, he is setting up a central theme of his campaign -- inequality. And the GOP is firing back, accusing him of stirring up "class warfare" and championing tax hikes.
Despite such acrimony, there is remarkable bipartisanship on a $200 billion annual tax expenditure that disproportionately benefits the wealthy -- deductions for homeowners.
Tax benefits for homeowners -- including mortgage interest and property tax deductions and exclusions on capital gains on sales -- were meant to encourage Americans to purchase houses as a way of building wealth and equity. But as our Asset Building Program points out in a new report and interactive infographic, most of the help lately has been going to the highest-earning Americans. Not only are the tax breaks helping the wealthy, the burst of the housing bubble hit lower-income families, who had more of their wealth tied up in their homes, particularly hard. This was especially true for blacks and Hispanics, as Aleta Sprague explains on the Asset Building Program's blog today.
At the same time, about half of all the benefits of the mortgage interest tax deduction go to households making more than $200,000.
That's a stark disparity and adds up to a significant piece of the budget. But the idea of homeownership and the American Dream are so tightly tied together, that no candidate will risk a serious proposal to eliminate the deductions.
There are, however, a few hints that both sides see the problem. President Obama did propose in his FY2013 budget to limit the value of deductions and exclusions for the highest tax brackets and the Simpon-Bowles deficit commission also suggested modifying the mortgage benefits. Paul Ryan's GOP budget also calls for cutting tax rates while remaining revenue neutral, so slashing the mortgage interest deduction would almost have to be on the table. Neither Ryan nor Mitt Romney are saying that on the record, though.