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Tax Policy Center: US tax policy prevents upward mobility

US Treasury

Many politicians and citizens alike believe that massive social welfare programs combined with vast government subsidies provide a catalyst for both growth and upward social mobility. Unfortunately these policies actually have the exact opposite affect that their proponents advertise. Surprisingly, even people in the Tax Policy Center are fully aware of this yet politicians fail to listen. Business Insider reports:

…according to my always-provocative Tax Policy Center  colleague Gene Steuerle , our tax and spending priorities not only fail to promote mobility for those who are starting at the bottom, but they often actively discourage the hard work and savings that help us climb the socio-economic ladder.

In testimony last week to the Senate Finance Committee , Gene estimated that of the nearly $750 billion in mobility-enhancing tax and spending programs in 2006, $540 billion–or nearly three-quarters– went to higher income households. Those with low-incomes received only about 2 percent of the benefit of subsidies for home ownership and almost none of the benefit of employer-related work subsidies or incentives for savings and investment.

Some of these programs not only fail to help poor and lower middle-class households, they actively hurt them. For instance, if home ownership is a key to upward mobility (an arguable proposition, but one many believe), we need to acknowledge that subsidies such as the mortgage interest deduction inflate home prices and make it harder, not easier, for poor families to buy.

Worse than that, Gene argues, once low-income households reach poverty level, government policy discourages work.  True, social welfare programs provide a valuable safety net for the very poor. For instance, the Earned Income Tax Credit and the Child Tax Credit are important income supports for low-income families.

With a budget that encourages consumption rather than work and savings, the gap between the American Dream of unfettered mobility and the reality will only widen, Gene fears. His solution: Rethink those tax subsidies and spending programs that too often hinder mobility, paradoxically in the name of enhancing it.

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