Tax Breaks Intended to Help Low-Income Virginians Often End Up Benefiting Wealthy

Aug 9, 2017

Credit MBandman / Creative Commons

As Washington turns its attention from healthcare to taxes, critics of the tax code on the right and left agree on one thing — too many tax breaks benefit wealthy people.

Do you own a yacht or a second home? Great! You qualify for a mortgage interest deduction. Laura Goren at the Commonwealth Institute says the vast majority of people who benefit from the mortgage interest deduction don’t need it to afford the house they’re living in.

“Many of the federal and state tax breaks that are intended to help families that are struggling to get by instead provide most of their benefit to well off individuals.”

A recent study of the Virginia tax code found that more than half of the tax preferences that were created to help low-income people actually do the exact oppose. Wealthy people use them as tax loopholes. John Buhl at the Tax Foundation says part of the problem is that low-income people usually don’t get involved with itemizing deductions. As a result, he says, one potential solution could be to get rid of a lot of those itemized deductions and instead double the standard deduction.

“People would at least feel more favorable about using the standard deduction and not feeling so negatively about losing the tax breaks that a lot of people are quite fond of and are often quite politically popular.”

Making that kind of change could have dramatic consequences at the federal level and at the state level. According to the Virginia Department of Taxation, households with an income of more than $100,000 a year claim almost $20 billion in itemized deductions.

The headline was updated for accuracy on Thursday morning, August 10th.

This report, provided by Virginia Public Radio, was made possible with support from the Virginia Education Association