A while back I wrote about asset poverty and how asset-building, not just income, is critical to achieving financial stability. The good news is that the federal government has a number of programs aimed at helping individuals and families build assets such as retirement savings or owning a home. The bad news is that this assistance is heavily skewed toward those who are already well-off, with very little help available to those who need it most.
The Annie E. Casey Foundation and the Corporation for Enterprise Development laid all this out in depressing detail in a report issued last year that should have gotten more attention than it did. The report explains that most of this asset-building assistance doesn't come in the form of government checks or loans, but rather as income tax breaks -- deductions for mortgage interest, for example, or tax-deferred contributions to a retirement account. This means that the poor, who pay relatively little in income taxes, get next to nothing from these breaks. And even those of moderate income, who typically still don't itemize deductions, get very little:
"A typical middle-class household making $50,000 a year receives less than $500 in benefits from the most expansive of these federal policies annually; families making $100,000 get about $2,000. By contrast, taxpayers bringing in more than $1 million enjoy $95,820 in annual support through mortgage and property tax deductions and investment tax breaks."
The millionaires, in other words, get a 9.5 percent break, while those making $50,000 get only one percent.
"Expressed differently," the report notes, "more than half of the $400 billion in benefits go to the top 5 percent of taxpayers, those earning more than $167,000. Meanwhile, low-income families get next to nothing."
The mortgage interest deduction, for example, skews overwhelmingly toward higher-income taxpayers with large, expensive homes. Those of modest means trying to buy a more basic dwelling often find that this deduction doesn't change their tax liability at all.
And while the tax code is larded with breaks for big corporations, there is precious little aid for what are called "micro-entrepreneurs" -- individuals with businesses that have five or fewer workers and involve under $35,000 in startup capital. Yet owning a small business is a proven way to build wealth and financial stability: Households with a business owner have more than double the likelihood of having an annual income exceeding $50,000 than those without a business owner.
And at the very low end of the income scale, many federal programs actually punish attempts to save by cutting off benefits for those with even a small amount of assets.
There are ways to fix this. Programs based on refundable tax credits rather than deductions are more likely to give meaningful help to low-income families. Caps on the value of homes or other deductible assets (particularly for second homes) would help level the playing field. And asset limits that bar those on government assistance from saving and building even minimal financial security need to be rethought.
Many politicians get indignant when you talk about "income redistribution." But right now, we have lots of policies that redistribute income upward, and it's time for that to change.