DENVER – The federal government spends billions of dollars every year on housing-related benefits but much more of that money goes to high-income households than the low-income residents who need it most.
That’s the conclusion of an analysis by ApartmentList, which compared the two biggest sources of housing aid – Section 8 and the mortgage interest tax deduction (MID).
By analyzing IRS and HUD data, ApartmentList found that the MID cost the federal government $71 billion in 2015. In contrast, funding for the Section 8 voucher program was $29.9 billion.
The mortgage interest deduction is what many experts call a “regressive” benefit, mean high-income households receive a greater proportion of the benefit than low-income households. While anyone who has a mortgage and pays interest can claim the deduction on their taxes, most of the people who do so are in in the higher income category.
For the sake of this analysis, ApartmentList considered low-income to be anyone making less than 80 percent of their local area’s median income. High-income is anyone making more than 120 percent of the median income.
More than half of high-income households claim the MID on their taxes, according to ApartmentList, but only 11 percent of low-income households get help from either Section 8 or the MID. The result is $1,549 of government spending per household for high-income families versus $416 for low-income households. This is despite the fact that low-income families are much more likely to have trouble making ends meet.
In the Denver area, housing assistance spending per household is $398 for low-income families while high-income households get $2,249 in assistance, according to ApartmentList. Middle-income households get $454 in federal assistance.
There are multiple reasons for the disparity. For starters, higher income earners are more likely to own a home (or even more than one home) and are therefore more likely to have a mortgage. And because people tend to have more expensive homes the more they make, higher earners are able to deduct more interest from their taxes.
In addition, lower income taxpayers are more likely to take the standard deduction instead of itemizing deductions on their tax returns, meaning they can’t claim the MID benefit.
Section 8 also is harder to qualify for, as many cities often have waiting lists and it can be difficult to find landlords willing to accept Section 8 vouchers.
President Donald Trump’s proposed tax plan would call for nearly doubling the standard deduction, which would decrease the number of people claiming the MID and reduce the cost to the federal government. However, this would likely only widen the gap, as high earners would still be able to claim the benefit while fewer low-income households would.
ApartmentList’s analysts suggest that changing the mortgage interest benefit from a tax deduction to a tax credit could help close the gap, since more people would be able to take advantage of the benefit.