Washington Sets the Pace on Income Inequality

Amid all the recent reporting about income inequality in America, one fact has remained remarkably well hidden: Washington, D.C. has a higher level of inequality than any of the 50 states, according to new data from the Census Bureau's 2013 American Community Survey.

The Census Bureau used a statistical tool known as the "Gini coefficient" to measure the difference between incomes at the high end and the low end. The higher the Gini coefficient, the larger the gap between rich and poor, with zero being the point at which everyone has an equal income, and 1 being the point at which inequality is the worst.

In 2013, the national Gini coefficient was .481, up from .476 in 2012, an increase the Census Bureau called significant. That compares to 0.397 in 1967, when the coefficient was first figured for the U.S.

In 2013, the Gini coefficient in the District of Columbia was 0.532, higher than the national figure and higher than every last one of the 50 states.

Moreover, the larger metropolitan area that includes the District of Columbia had the highest median household income of all of the 25 largest metro areas in 2013: $90,000 per year. That means a full 50 percent of the households make MORE than that.

It's not surprising that inequality should be highest in the nation's capital. Looking at inequality in terms of wealth as well as disposable income, Washington has played a central role in increasing it nationwide. And it has done so largely through a disastrous series of failures in housing and mortgage credit policy.

First, in the early part of the new millennium, Congress and the White House sat idly by as lenders financially ravaged lower-income and minority neighborhoods with dangerously risky loans to buy overpriced homes. Many of those loans led people quickly into foreclosure and severe economic loss, including many people who already owned their homes free and clear.

The resulting foreclosure crisis left many minority neighborhoods blighted with vacant and abandoned homes and unable to attract critical commercial investment.

When the foreclosure crisis blew up and the mortgage market collapsed in 2008, Congress and the federal bureaucracy took over the task of deciding who could get loans and who could not.

And yet, six full years later, they still have not decided what the new American mortgage market should look like or how it should operate. Mortgage loans remain very hard to come by, even for middle-class folks and sluggish home sales are still a drag on the economy. As a result, many people are not benefitting from the upward mobility that homeownership can bring.

But the root cause of this continued inequality lies with the policy of subsidizing home purchases by wealthier households while doing very little to help the lower-income families that generally rent their homes.

Take the home mortgage interest deduction for example.

Costing at least $70 billion a year, the mortgage interest deduction is one of the largest federal tax expenditures, but most of its benefits go to higher-income households who generally could afford a home without assistance, according to the Center for Budget and Policy Priorities. In 2012, 77 percent of the benefits went to homeowners with incomes above $100,000. Meanwhile, close to half of homeowners with mortgages -- most of them middle- and lower-income families -- received no benefit from the deduction.

At the same time, of all the people with incomes low enough to qualify for federal rental assistance, less than one-quarter actually receive such assistance, including the elderly and families, because Congress refuses to adequately fund rental housing programs.

Forty percent of renter households paid more than 40 percent of their income for rent in 2013. When you look at lower income households, the percentage paying more than 40 percent is far higher, and the impact on their lives is much greater. It's very hard to improve one's economic potential when it's a struggle just to meet the monthly rent payment and avoid eviction.

It's no wonder that median incomes are so high in Washington. The policies that favor the wealthy are getting results, according to the rest of the Census data. The Gini coefficient increased in 2013 in 15 states. It was basically unchanged in 34. Alaska was the only state where inequality decreased by this measure.

Housing policy changes could help reverse that trend, and there are some tentative signs that change may be on the horizon. A bipartisan group of former members of Congress and former cabinet secretaries recently called for a reduction in the tax benefits for homeownership, and the use of some of the revenue to help provide more affordable rental housing. Now, as the income gap between rich and poor continues to widen towards new extremes, it's an idea whose time has certainly come.