Economists decry government subsidies, because they distort the market and cause inefficiencies, thus wasting taxpayers’ money and decreasing overall economic growth. Taxpayers and advocacy groups rightly decry government subsidies to corporations as pork-barrel spending.
Where then is the indignation regarding the two biggest subsidy programs of them all?
I’m talking about the home mortgage interest deduction and the employer health insurance deduction. The home mortgage interest deduction subsidizes homeowners at the rate of $100 billion per year, while employer health insurance is similarly subsidized at $250 billion per year. These subsidies carve a large hole in government revenue, which could otherwise be used to reduce the deficit or reduce taxes for everyone.
Both subsidies also have a more insidious effect – they raise prices for both homes and medical care, thereby making it harder for those with low incomes to afford either one. The mortgage deduction lowers the effective cost of a house for all buyers, thus increasing demand and raising prices. The net effect of the subsidy is to cause Americans to live in bigger houses than they otherwise would, without raising rates of home ownership significantly. Similarly, the employee health care deduction raises the cost of health care for everyone, and causes Americans to spend more on health care than they otherwise would.
Neither deduction is designed to help those with the greatest difficulty in getting a home or health insurance. Lower income families can’t afford the down payment required to avail themselves of the mortgage tax break, and most low-paying jobs don’t provide health care as a benefit.
These subsidies are popular because they target middle and upper-income America, but that doesn’t make them any more effective than much-maligned corporate subsidies. $350 Billion is a lot of money, and should either be given back to ALL American taxpayers, or spent paying for the deficit, recent wars, or other priorities.
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