The Oregonian: Oregon’s massive housing subsidy to the well-off deserves legislators’ scrutiny: Editorial Agenda 2017
As public policy goes, the state’s home-mortgage interest deduction that helps shrink Oregonians’ tax bills flunks the test of public benefit.
The practice, which allows homeowners to deduct the amount of annual interest they pay to mortgage lenders, will cost Oregon nearly $500 million in lost revenue this year. The subsidy largely benefits higher-income tax filers who are more likely to itemize their deductions and who are the ones securing larger mortgages in the first place. Renters, who arguably pay property taxes just as homeowners do through their rent payments, get no similar benefit.
It’s irrational, and several states, including Massachusetts, New Jersey and Ohio, don’t allow taxpayers to deduct it in computing their taxable income for state purposes. But will legislators have the stomach to revise this practice?
The bill calls for capping the amount of mortgage interest that someone can deduct on their state tax returns to $15,000. That’s well above the average deduction claimed by the nearly 500,000 filers who submitted itemized returns in 2013, according to the Oregon Department of Revenue’s most recent tax expenditure report. It also calls for eliminating entirely the deduction on second homes. In addition, anyone whose adjusted gross income is $100,000 or more (or joint filers earning $200,000 or more) would not be allowed to claim any mortgage interest deduction for state tax purposes. The proposed changes would not apply to the mortgage interest deduction on the federal level.
The Legislative Revenue Office has not yet analyzed the proposal. But the Oregon Center for Public Policy, one of the members of the coalition that developed the proposal, estimates it could bring upwards of $200 million or more per biennium for the state, Juan Carlos Ordonez, spokesman for the center, told The Oregonian/OregonLive Editorial Board. That money would then fund assistance for down payments, initiatives to build starter homes and other programs that increase the supply of housing, said Jes Larson of the Welcome Home coalition, another member organization of the network behind HB 2006. Addressing supply is key – there is no way to legislate our way out of this housing crisis if nothing is done to significantly increase the inventory of places for people to live.
That said, this bill is far from perfect. The revenue office’s vetting could change some of the projections. And other provisions, such as the arbitrary $100,000/$200,000 income cut off could be problematic. While Ordonez maintains that six-figure Oregonians can easily absorb the hit, his conclusion seems driven by assumptions that anyone of that income level is immune to financial strain and can adapt in a heartbeat. Good public policy calls for objective consideration of how best to limit fallout when longstanding rules suddenly change.
Yes, mortgage interest deductions are a form of welfare for the better off. But the threat of immediately revoking it from people who may have based significant financial decisions on the promise, is bound to trigger unintended consequences. Not the least of which might be sparking opposition from those who might otherwise support the $15,000 cap. And this proposal needs all the support it can muster.
Legislators also must recognize the multi-faceted budget disaster that Oregon faces. While the mortgage interest deduction is a worthwhile debate, they must also confront thornier issues as easing the public-pension burden on public employers and raising new revenue from businesses.
Oregonians can be stubbornly protective of irrational, nonsensical policies that mask their destructiveness with short-term sweeteners (see: personal kicker rebate). That does not give legislators a pass on addressing it, however, particularly when the state faces a $1.6 billion budget deficit. Start the work toward a saner system, pair it with real change on pension reform and corporate taxation, and show Oregon what true leadership and progress looks like.
– The Oregonian/OregonLive Editorial Board
This article was originally published at: http://www.oregonlive.com/opinion/index.ssf/2017/03/oregons_massive_housing_subsid.html