Biggest US Tax Break Kinder to Higher Income People

US Mortgage Deductions Are Friendlier to Wealthy People

With all of this talk of tea parties and high income taxes, I think it is time for a reality check. No, it is not time for a reality check, but it is well past time for a reality check! Some of the US tax breaks that cost the most money actually tend to support wealthier people and business!

Look at the home mortgage interest and tax deductions. More expensive houses usually have higher loans and a higher property tax rate. This is usually deductible. So people who can qualify for larger loans, are very likely to pay more interest on those loans. It seems obvious to conclude that this tax break is helping higher income people a lot more than lower income people. If you live in a brand new 6 bedroom McMansion, you are probably getting more of a tax break than a guy in a 3 bedroom ranch house that was built in the 1970′s.

A person who owns a first or second home can deduct the interest for loans to build, buy, or even repair their homes. I am pretty sure that Joe Sixpack is not pushing that million dollar limit. And people with larger incomes were the most likely to be able to itemize deuctions anyway instead of taking the standard deduction that everybody qualifies for.

In fact, that mortgage deduction has been the costliest US tax break. In the last 5 years, it has helped Americans save over 500 billion dollars in taxes. It also seems to be a sacred cow with US policy makers. Many bills are out there to streamline and simplify taxes, but they do not touch the home interest deduction.

Other Expensive US Income Tax Breaks

Let’s look at the second costliest tax break. It is the subsidy for work based health plans. Sure this helps more employees get group medical benefits, and we hate to argue with that. But it helps businesses retain those employees and keep the real cost of group plans lower.

What’s third? That would be the deduction for contribution to retirement plans. Who is probably making the largest contributions? That would be, in my estimate, wealthier people.

A lower tax rate on dividends and capital gains would come in 4th. Again, this probably helps people with enough money to invest in stocks and assets.

You have to get all the way to number 5 to find a tax break that may help lower income people. This is the earned income tax credit!

What is the point of all of this? The people who complain thet loudest about out of control taxes are likely to be benefiting the most from the current system. Beware of tax reform lopping of the heads of your sacred cows.

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