The Rich Benefit the Most From Tax Breaks Designed to Help People Build Wealth

Most of the government money spent to encourage savings went to the highest-earning Americans

A 15,000 square foot custom built home in Belvedere, California, U.S.

Photographer: David Paul Morris/Bloomberg

The federal government spent $384 billion in 2013 on tax incentives that encourage savings, linked mainly to home ownership and retirement plans. Most of that money went to the rich.

The highest-earning fifth of U.S. taxpayers got about two-thirds of the tax refunds and exemptions on things like mortgage interest and property taxes in the current U.S. tax code, while the bottom fifth received less than 1 percent, a report by the Urban Institute shows. Households with less income have less to tuck away for a rainy day and often can't afford to buy a home, so they are less able to take advantage of these tax breaks. 

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Source: Urban Institute

Both Republicans and Democrats have talked for years about reforming the U.S. tax code, but agreeing which loophole to close is tough.

African Americans and Hispanics, who have lower average incomes, also receive less in asset-building subsidies than whites, Urban notes.

Worse-off families do benefit from food stamps and other safety-net programs. Those focus on income rather than wealth-building, though, as the Urban analysis notes. In fact, such policies can discourage saving by requiring that recipients have limited assets in order to receive the benefit, according to a Corporation for Enterprise Development report updated in 2014.  

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Source: Corporation for Enterprise Development

The big take-away? Asset-building policies affect how wealth is distributed in the U.S., exacerbating the existing gaps between the rich and the poor. For further reading, you can see the Urban Institute article here

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