Oregon lawmakers continue to look for new and creative ways to reach into taxpayers’ pockets. The latest: House Bill 3349. It would eliminate the mortgage interest deduction on second homes and means test it on primary ones, beginning with the tax year that started Jan. 1, 2019, no matter when a home was purchased. It should be defeated outright, or, at the least, changed dramatically.
There’s a case to be made for removing the tax deduction on second-home mortgage interest. Most people don’t need more than one place to live. Second homes are often used for recreational purposes. If they’re also doubling as vacation rentals, owners are legally obligated to pay transient room taxes on rental income, and if they’re rented for longer periods, they’re generally treated as businesses, with a variety of deductions available.
Means testing the mortgage interest tax deduction is another matter. HB 3349 would phase out the deduction on first homes for people making more than $200,000 annually. There are problems with that, however. Means testing takes the assumptions used when affected homeowners bought their homes and turns them upside down. Homes are bought assuming owners would be able to deduct the interest they paid on mortgages from their taxable income. The homes they chose were ones they could afford, using that calculation. Under this bill, their adjusted income would rise, and with it their tax bills. What was an affordable house could easily become unaffordable.
The wealthiest Oregonians are already paying far more than their less well-off counterparts, even in a state that is not at the top of the chart when it comes to the progressiveness of its income tax requirements.
Thus, the top 5 percent of Oregon taxpayers, those with adjusted gross income of $185,000 and above, accounted for 39.6 percent of income tax revenue in 2016, according to the Oregon Department of Revenue.
Too, Oregon has one of the highest income-tax rates in the United States, and income and cost of living are not the same things. The state should not assume that all upper-end taxpayers have money to spare, as this legislation does.
Oregon must not “fix” its homelessness and other problems just by soaking business and those who lawmakers assume are rich. We need a well thought out and fair approach to taxes, and HB 3349 isn’t it.