Lawmakers have proposed eliminating the state’s piece of the popular mortgage interest deduction for second homes and reducing it for high earners.
Eliminating the write-off in those cases would raise $150 million. House Bill 3349 calls for that money to be directed to programs that promote homeownership or prevent homelessness.
The bill is sponsored by Democratic members of the Legislature, including the chairwomen of both chambers’ committees that deal with housing. It had its first hearing Monday.
The mortgage interest deduction is the nation’s biggest housing subsidy, but critics say it primarily benefits higher income households. Some lower-income homeowners realize no benefit at all because they don’t itemize their deductions. That’s grown more common after 2017’s federal tax reform, which increased the standard deduction.
Oregon’s bill would allow residents to claim the deduction for state taxes only for their primary residence. It also phases out the deduction for people who earn more than $200,000, or $250,000 for couples who file jointly. The changes would begin with the 2019 tax year.
“This isn’t a new tax,” said Daniel Hauser of the left-leaning think tank Oregon Center for Public Policy. “What it is is a shifting of our subsidies in a more equitable and more effective way to actually boost homeownership and really help (homeless) families.”
But Realtors and homebuilders say eliminating the subsidy could undermine homeownership efforts. Ellen Miller, a lobbyist for the Oregon Homebuilders Association, said it could reduce the incentive for homeowners to “move up” to more expensive homes, freeing up the stock of starter homes.
“Our concern is due to the potential impacts on upward mobility in homeownership and building equity,” Miller told lawmakers.
The deduction is very popular, even among those who don’t use it.
A 2017 nationwide poll by Economist/YouGov related to tax reform found that only 20 percent of respondents supported eliminating the deduction in exchange for a larger standard deduction. Support outweighed opposition even among homeowners who don’t itemize their deductions — and even renters. (The poll included 1,500 U.S. adults in a web-based interview.)
James Marshall, who owns a home and several rental properties in Marion County, told lawmakers they would be taking away one of few tax benefits available to “common Americans.”
“To change this midstream for all of us who made the decision to purchase based on the tax advantage that was available … would be devastating to me personally and would probably cause me to sell my investment properties and perhaps my principle residence as well,” he said.
The bill, currently before the Human Services and Housing Committee in the Oregon House, is expected to see amendments before it advances. It will also go before the House Revenue Committee, which deals with taxes.