Who Benefits from Tax Subsidies for Asset Building?

Wednesday, April 15, 2015

Our colleagues at CFED have a tremendous report that quantifies the extent of federal investment in subsidizing wealth creation for already-advantaged Americans. In sharp contrast to the asset limits and penalties that low-income households often confront as they try to access critical consumption supports, already-wealthy Americans enjoy considerable tax benefits to help them accumulate still larger holdings.

Exposing the extent of these federal supports for asset building highlights the unjust allocation of resources and the ways in which U.S. tax policy fails to facilitate economic mobility for those most disadvantaged. This analysis can also help to build the case for the kinds of wealth transfers that could make a significant difference for low-income children, though, since it reveals the hollowness of assertions that such subsidies are somehow inconsistent with American ideals of individual effort as determining outcomes.

It is not just the sheer size of these tax subsidies for asset building that is noteworthy, although CFED estimates that the federal government spent nearly $400 billion in 2009 to shore up families' asset investments.

Nor is this just about the unequal skew of these benefits, although more than half of those $400 billion in benefits accrue to just the top 5% of taxpayers.

Also demanding attention is the relative invisibility of these $400 in subsidies and how easily our policy conversation misses benefits that are delivered, as these are, through the vehicle of tax policy. We tend to focus in on the comparatively modest subsidies for consumption among those in poverty, even though these asset investments are arguably far more significant in determining the life chances of recipients.

On this Tax Day, review of the federal asset-building tax budget should remind us that tax policy really does matter, that U.S. tax code can be an instrument with which to accomplish social ends, and that increasing the equity of tax policy can be a potent tool with which to address poverty and improve opportunity.

There are many ways that tax policy could support the economic mobility of low-income children and families, including making incentives for activities like college savings refundable, reforming higher education tax benefits to capitalize progressive Children's Savings Accounts, and leveraging the occasion of tax filing to institutionalize savings behavior.

Used correctly, tax policy could provide a robust foundation for meaningful asset-building opportunities for the Americans who most need them.

Let's mark this April 15th by pledging to turn the 'upside down' asset-building tax budget right-side up.

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