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Editor: Paul L. Caron, Dean
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Tuesday, June 21, 2016

Dorothy Brown's Radical Idea: Deny The Mortgage Interest Deduction To Homeowners In Neighborhoods With < 10% Blacks

Washington Post Wonkblog:  A Radical Idea to Compensate Black Homeowners Harmed by Racial Bias, by Emily Badger:

MortgageHomes in black middle-class neighborhoods, like the one where Natalie Y. Moore grew up on the South Side of Chicago, typically don't gain value over time the same way homes in mostly white middle-class neighborhoods do.

The people who live there are penalized for biases built into the housing market. White home buyers seldom consider neighborhoods with even a modest black population, and so housing demand is much lower in those communities. That drives down prices and muzzles appreciation. It means that homeownership simply isn't as good of a deal in neighborhoods that are even slightly black.

Moore, a public radio reporter writing in her new book, The South Side: A Portrait of Chicago and American Segregation, quotes an idea from Emory University law professor Dorothy Brown on how to partially remedy this: "Why don't we say no one gets a mortgage interest deduction unless they live in an integrated neighborhood?" Brown told her. "We realize you're taking a penalty in the market, and we want to compensate you by lowering your taxes." And Brown's radical proposal to implement the idea: Let's extend the mortgage interest deduction only to homeowners who live in neighborhoods that are at least 10 percent black. [Shades of the American Dream, 87 Wash. U.L. Rev. 329 (2010).] ...

I called Brown to talk through her idea more. To my surprise, she is actually not interested in nudging people to live in more integrated neighborhoods. She's not sure integration in itself is a worthy goal. "Every time I presented this paper, someone said, 'Oh you’re encouraging integration,' " Brown says of the 2009 paper in which she first floated the idea. "I said, 'No I’m not.' I’m basically compensating people who live in more than 10 percent black neighborhoods. Some of those are racially integrated. Some of those are not."

She is more interested in making it up to people who are harmed by biases in the housing market than getting us to behave in ways that would overcome those biases. As a scholar, she primarily writes about the race and class implications of federal tax policy. The mortgage interest deduction disproportionately benefits whites because they're much more likely to be homeowners. But she realized that white homeowners disproportionately benefit even relative to black homeowners because housing is worth so much more to whites.

"There’s a market penalty – I call it an appreciation gap – in any home in a neighborhood with more than 10 percent black [population]," she says. "It doesn’t matter if you’re a white homeowner or a black homeowner. If you’re in a neighborhood that's 10 percent black, that home isn't going to appreciate the same way it would if you picked it up and moved it to an all-white neighborhood. I found that fascinating."

Tax policy, she figured, should disrupt that pattern, not exacerbate it. As a practical matter, that would mean that black homeowners in all-black neighborhoods would get the deduction. It would mean that white, Hispanic, Asian and black homeowners in neighborhoods that are 10 percent black would get it, too (a similar penalty doesn't appear to be associated with Asian and Hispanic residents). Whites with few blacks in their neighborhood would not.

See also Dan Shaviro (NYU), Tax Policy Colloquium on Dorothy Brown's "Shades of the American Dream" (Feb. 13, 2009)

https://taxprof.typepad.com/taxprof_blog/2016/06/dorothy-browns-radical-idea-deny-the-mortgage-interest-deduction-to-homeowners-in-neighborhoods-with.html

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Comments

And if that does not work, drug test them

http://www.forbes.com/sites/anthonynitti/2016/06/19/tax-proposal-would-require-the-rich-to-take-a-drug-test-in-order-to-claim-tax-deductions/

If ideas like these were coming from the Trump camp we would not hear the end of it...

Posted by: MG | Jun 21, 2016 2:47:21 PM

This is what I call outside the box thinking. Probably outside the Constitution, too, but a good thought experiment regardless. I'm willing to bet that the unintended consequences would outweigh the intended consequences. Just as, for example, one unintended consequence of publicly operated K-12 schools has been segregation of neighborhoods by economic class.

Posted by: AMTbuff | Jun 21, 2016 3:06:54 PM

10% is a big number given that the national African American population is about 13%. We cannot assume a completely random distribution across the nation. But 5, 6, 7, 8%? Intriguing.

Posted by: Jack Chin | Jun 21, 2016 7:22:34 PM

In my hometown in Idaho, there were about 4,000 residents, lets say about 400 families. There were 0 black families. There was one or two adopted black children--lets assume those don't count. Does this mean that unless the town could somehow lure 45 black families to pack up and move to rural Idaho, the whole town loses out on the mortgage interest deduction? Sometimes it is apparent the folks who come up with this stuff have never been to the vast majority of the country.

Posted by: Jeff | Jun 21, 2016 8:29:49 PM

Not a "radical" idea, ... a racist one.

Posted by: ruralcounsel | Jun 22, 2016 4:54:39 AM

I swear sometimes it seems that lefty academia is actually the Onion, or some other parody of itself. Then I remember some people actually believe in these proposals, and I fear for the future when they escape into the real world.

Posted by: todd | Jun 22, 2016 6:53:50 AM

Time to get rid of the mortgage deduction...not fair for renters in big cities. It's a good time to do it too because interest rates are so low.

Posted by: Steve | Jun 22, 2016 7:09:00 AM

How about a carrot? Allow most people to take the standard mortgage interest deduction, but offer a tax credit for those residing in new, planned "diversity zones" with diversity defined broadly enough to include a host of demographics but narrow enough to ensure rich community diversity. A thought . . . .

Posted by: Lux | Jun 22, 2016 11:58:00 AM

Frankly, it is this type of nonsense that illustrates why the mortgage deduction, along with all other itemized deductions, needs to go. What's next, a gay tax preference?

Posted by: Dale Spradling | Jun 22, 2016 4:55:19 PM

I wonder how much home prices would drop if the mortgage interest deduction were to disappear? And how many homeowners would suddenly find themselves underwater with their current mortgages?
2008, here we come again!

Posted by: ruralcounsel | Jun 24, 2016 4:57:57 AM

@rual Do you remember the brouhaha went credit card interest went bye-bye? It was going to be the end of the world as we know it. (Same thing with Brexit.) But somehow, the sun kept coming up, bird kept singing, the world went on, and people kept accumulating credit card debt.

The same will happen here. Besides, if the mortgage deduction really props up home prices, perhaps this is more proof of the problem.

Posted by: Dale Spradling | Jun 24, 2016 6:57:17 AM

@Dale Given the markets reaction to the Brexit vote, I'm not sure you are making the point you think you are!

Posted by: ruralcounsel | Jun 24, 2016 9:47:22 AM