How Federal Tax Law Rewards Segregation

Abstract

Residual, de facto segregation is among the most enduring barriers to equal opportunity in America. Nearly five decades after the Fair Housing Act of 1968, Blacks and Latinos still tend to live in neighborhoods where the majority of residents are people of color. Such racial segregation is often accompanied by economic segregation. Meanwhile, sociologists, housing law scholars, and poverty law experts have stressed the importance of residential location to the impact of poverty and the potential for upward economic mobility. But an unlikely source of federal housing law—the tax code—may interfere with efforts to promote more integrated communities. This Article argues that federal tax law rewards White-flight and economic segregation and, as a result, may exacerbate the enduring effects of past policies like redlining and exclusionary zoning, while also limiting the effectiveness of non-tax federal programs intended to promote housing choice, such as the Section 8 tenant voucher program. The Article begins by using publicly available data from the Internal Revenue Service and the Department of Housing and Urban Development to map the flow of mortgage interest deduction benefits and the location of low-income housing tax credit properties in a representative city, Philadelphia. Next, the Article uses thought experiments to demonstrate how features of the tax law create monetary incentives to reinforce the segregation patterns reflected in the spatial distribution of these tax-subsidies. Finally, the Article sets forth recommendations for tax policy reforms that would better promote integrated communities.