Public housing is supposed to help give low-income families a place to live, but according to a Washington Post report (link), some families getting public help have pretty high incomes, in one case nearly half a million dollars a year.
At first glance that sounds outrageous, but as usual the truth is a bit more complicated, as the WaPo article goes into and as Kevin Drum addresses as well in a blog post here.
In brief, a lot of public housing is funded by the federal Department of Housing and Urban Development, but it's generally run by state and local governments that, in keeping with HUD regulations, check income before families are allowed to move in but usually not afterward. Some people in public housing manage to get better jobs and make more money — which pretty much everybody from across the political spectrum wants poor people to do — and those who can afford to as a rule find a better place to live when they can.
Exceptions to the rule are rare, which is one reason there's not much effort expended getting higher-income families out of public housing. But it's not the only reason: Having a few high-income families around is actually a positive thing, in that it encourages other residents to strive for the same success.
There are obvious downside, too, of course, including the fact that taxpayers end up helping to subsidize housing for people who don't need it.
But if that's a concern, there's a bigger one neither Drum nor the Post mentions: the mortgage interest tax deduction.
To encourage people to buy houses, mortgage interest is deductible against income for purposes of federal income tax (and in many cases state income tax as well). This means that when you pay mortgage interest, you get back some of it in the form of a lower tax bill. How much benefit you get depends on how much interest you pay and what your marginal tax rate is. If you pay $6000 in interest and you're in the 25 percent bracket, you get back $1500 in reduced taxes. If you pay more interest or you're at a higher income level, you get even more. If you're making over half a million a year, you get back almost 40% of interest payments as a tax break. On the other hand, if you're working two low-wage jobs that put you in the 10 percent tax bracket but you still buy a house to give your kids a better home, then you get a tax break worth only a dime off every dollar of mortgage interest.
Psychologically, a tax deduction doesn't seem like a subsidy because "you're just getting to keep more of your own money." But in terms of real-world dollars and cents, it's exactly like a subsidy. It makes no difference whether the government increases my tax refund by $1500 or cuts me a separate check for $1500. Fifteen hundred dollars is fifteen hundred dollars.
Incidentally, the "marginal" tax rate is the tax that applies to your last dollar of income. If you're in, say, the 25 percent bracket, only the portion of your income over $37,500 (for single taxpayers) or $74,900 (for married couples) is taxed at that rate in the current tax year. Moreover, the amount covered by personal exemptions, adjustments, and deductions isn't taxed at all (and much investment income is taxed at a reduced rate besides be exempt from Social Security tax).by