Washington at Work--for the Wealthy

Scroll through the right-wing blogosphere, or listen in at a tea party rally, and you'll find angry people ranting about an out-of-control federal government that's redistributing the nation's wealth to the undeserving poor.

Those rants do have one point right: The federal government is shoveling hundreds of billions of dollars into programs that redistribute wealth. But these "wealth-building" programs aren't redistributing wealth from the top to the bottom. They're actually shifting more wealth to the top.

"We cannot avoid the sad irony," as one new report has just concluded, "that government policy aimed at building wealth is largely helping the rich get richer."

This new report from the Annie E. Casey Foundation and the Corporation for Enterprise Development--Upside Down: The $400 Billion Federal Asset-Building Budget--dives deep into the programs that aim to help Americans "buy homes, start businesses, put their children through college, and retire comfortably."

Upside Down's authors added up all the money the U.S. government devoted to these programs last year, and then tracked who exactly reaped the benefits. In nearly every instance, the answer came back the same. Federal dollars, as Upside Down details, routinely "subsidize wealth building for the wealthiest among us, rewarding them for (the) size of their homes and investment portfolios."

How could this be? Most federal asset-building programs, the study explains, deliver their benefits through the tax code, an approach that almost guarantees that the wealthy will score, by far, the biggest benefits.

Here's one example: The federal government encourages home-ownership--a central pillar of family wealth building--with tax deductions for mortgage interest and local property taxes as well as discount capital gains tax rates on the sale of property.

These sorts of tax subsidies work spectacularly well--if you have lots of income you can apply these tax breaks against. But if you don't have much money to report on your tax return, these tax breaks do you precious little good.

Low-income households that "don't make enough money to itemize deductions or even to accrue much tax liability," notes Upside Down, "receive next to nothing from these strategies."

And middle-income families don't see much benefit either. The typical household making $50,000 a year, the study relates, received in 2009 only $500 in benefits from the federal government's mortgage and property tax deductions and investment tax breaks. Taxpayers making over $1 million a year, on the other hand, averaged $95,820 last year from these same subsidies.

Over half the benefits from these programs went to the most affluent 5 percent of Americans: families making over $160,000. Just 4 percent went to the nation's bottom 60 percent: families that earned under $50,000 in 2009.

In other words, the near $400 billion the federal government is laying out, largely via tax subsidies, to help families "save, invest, and build assets" is doing remarkably little to help the families that really need the money.

Of course, alternatives do exist. We could, notes Upside Down, easily alter how we "deliver" asset-building assistance. We could, for instance, replace tax deductions with "refundable tax credits," a move that would funnel actual checks to Americans who don't have tax bills big enough to benefit from tax deductions.

And to end the windfalls for the wealthy our current system encourages, we could place "caps on the value of homes and other assets that can be deducted." That would mean no more tax breaks for mansions and palatial beach retreats.

We need to pursue all these alternatives, especially now, with so many millions of Americans facing foreclosure and finding jobs so few and far between. We don't need to start redistributing our nation's wealth. We're already redistributing. We just need to reverse the flow.