Is The Mortgage Interest Tax Deduction Creating Inequality?

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April 18, 2016

Just hearing the words ‘tax break’ is enough to make anyone let out a sigh of relief. It’s like hearing the words ‘ice cream’ on a hot summer day or seeing a rest stop sign while making a road trip. However, is it possible one of the most enjoyed tax breaks for Americans is actually contributing to inequality?

As MarketWatch reports, a Trulia analysis suggests the mortgage interest deduction may be providing white men with a larger benefit than women and minorities. The Trulia analysis got rid of age and household income in order to compare different groups of taxpayers. It found that nonwhite Americans are between 38 percent and 58 percent less likely to be able to take advantage of the deduction than a white head of household of the same age and income. Women were also 10.5 percent less likely to get the tax break.

Trulia suggests part of the issue is that minorities are more likely to have fewer and smaller intergenerational wealth transfers, meaning coming up with the cash for a down payment is much more difficult. The analysis also found female taxpayers were more likely to be single and raising children than male taxpayer heads of households.

In 2013, only 12 percent of tax filers with incomes under $50,000 took advantage of the deduction compared to 94 percent of tax filers with incomes over $200,000.

A possible solution would be to convert the deduction into something like a housing tax credit that would benefit mortgage holders and renters by helping to get a down payment.

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