Rep. Keny-Guyer is considering a proposal to limit the mortgage interest deduction, whose dollars disproportionately benefit wealthy Oregonians
State Rep. Alissa Keny-Guyer (D-Portland) said she will revisit Oregon’s largest and most popular housing subsidy in the 2019 legislative session.
The problem is that the much-debated mortgage interest deduction favors wealthier homeowners, while the poorest state residents struggle to keep a roof over their heads. That’s not how housing dollars should work, said Keny-Guyer, who chairs the House Interim Committee on Human Services and Housing.
Last year, the committee heard a bill to limit the deduction for the highest-income homeowners. The bill died in committee, but Keny-Guyer emerged from the debate feeling the support was there to revisit the issue again in the upcoming session.
FURTHER READING: Not all homeowners reap the same benefits from mortgage interest deduction (January 2017)
“I think people were shocked when they found out the statistics of what federally and statewide we put into homeowner tax benefits, primarily the mortgage interest deduction, and conversely how little we put into non-homeowners – renters and the homeless,” Keny-Guyer said.
“As the housing chair, I look at where we spend our housing dollars and I’m very alarmed and concerned at how much goes to the upper end. And I always lament the fact that we don’t have enough for housing, and it’s not that we as a state don’t allow significant amount for housing; it’s just that we put it in the wrong area. I want to address that in the Legislature, and it’s one of my top priorities.”
Each biennium, the state’s mortgage interest deduction sends $1 billion to Oregon homeowners – more than half of it going to the top 20 percent of income earners, according to statistics compiled by the Oregon Center for Public Policy, which opposes the deduction.
The majority of homeowners, those in the lower income levels, receive less than 15 percent of those dollars.
“We have, over the years, been spending $1 billion per biennium on our mortgage interest deduction, and only $10 million on our emergency housing assistance for distressed renters and the State Homelessness Assistance Program. That’s 1 percent of a billion,” she said. “We’re so out of whack on how we allocate our housing dollars.”
The specifics of any modifications to the deduction are yet to be decided, Keny-Guyer said, but it is expected to preserve the deduction for most homeowners, with some limits placed on the highest mortgages.
In Oregon, the mortgage interest deduction, like most state tax laws, directly reflects federal laws. Until recent changes, homeowners were allowed to deduct the interest on mortgages up to $1 million. Last year, homeowners received nearly $70 billion in federal deductions.
However, this year, the Trump administration changed the tax policy to allow for interest deductions on mortgages up to $750,000. Homeowners are also allowed to use the deduction when purchasing a second home. The cap on the mortgage applies only to new homebuyers.
“We will be coming forward with what will be a very reasonable proposal,” Keny-Guyer said. “Certainly the intent remains to leave the vast majority of existing homeowners unaffected and really look at just eliminating or reforming the benefits that go to the wealthiest Oregonians who do not need help in affording a home.”
Changing one of the largest and most popular tax deductions won’t come without a fight. As in the past, the national and local Realtors associations are expected to argue against any modifications to the law, particularly with the changes already at the federal level.
The Oregon Association of Realtors did not respond to requests for an interview, but its position on the deduction has been consistent over the years. The mortgage interest deduction is a strong incentive for homeownership at all income levels, according to the association.
Oregon’s homeownership rate hovers around 62 percent. That’s just slightly lower than the 63 percent rate in Washington, one of nine states that do not collect income taxes and therefore do not offer the interest deduction. New Hampshire, which also doesn’t offer the deduction, has a homeownership rate of 71 percent. Alaska, Florida, Tennessee and Wyoming also do not offer the deduction, and all have homeownership rates higher than Oregon’s.
Although the Realtors consistently defend the deduction as an incentive compelling people to buy homes, a survey compiled in the National Association of Realtor’s 2018 Home Buyer and Seller Generational Trends report shows the tax benefits are low on the list of reasons for buying a home.
Only 1 percent of all buyers surveyed said tax benefits were the primary reason for buying a home, ranking 14th out of 16 options. This supports critics’ view that the deduction benefits people who already chose to buy a home but might be inclined to buy more expensive properties with the deduction.
“The policy continues to be ineffective, inefficient, and it does nothing to address Oregon’s severe housing crisis,” said Juan Carlos Ordóñez, communications director with the Oregon Center for Public Policy. “It’s high time Oregon put its housing resources to the best use, and for that to happen, the mortgage interest deduction needs to be reformed.”
Ordóñez said the forthcoming proposal would be “reasonable.”
“Certainly the intent remains to leave the vast majority of existing homeowners unaffected and really look at just eliminating or reforming the benefits that go to the wealthiest Oregonians who do not need help in affording a home,” Ordóñez said.
The current system, Ordóñez said, actually does harm to prospective homeowners by artifically inflating pricing. Incentives for housing should be directed at people who are struggling under the region’s housing crisis.
“It is truly an indefensible policy,” Ordóñez said. “It makes no sense. Every economist of just about any stripe will tell you that – unless they are getting paid by the Realtors. It needs to be reformed. It’s a tax subsidy that is disproportionately, overwhelmingly flowing to those at the top of the income ladder.”
FURTHER READING: Revise Oregon’s mortgage interest deduction (Editorial)
Keny-Guyer said that equalizing the playing field for homeownership is important as a means of building family and community assets, and as a primary strategy for helping people rise above poverty. Simply raising the minimum wage isn’t improving people’s finances if the wealth is simply handed over to landlords – the people who own the asset,” she said.
“I can’t even think of another policy that is as responsible as the mortgage interest deduction and other homeowner tax benefits for increasing the economic disparity that we have in our country right now – along class lines and along racial lines,” Keny-Guyer said. “Because people of color were locked out – legally and policy-wise – of homeownership for so many decades.”
While the Oregon Realtors Association did not respond to requests for comments for this article, it has been using its muscle to put Measure 104 on the November ballot. Measure 104 would amend the state Constitution to require a three-fifths supermajority vote to increase revenue through changes in tax exemptions, credits or deductions.
Currently, for example, a bill to change or reduce tax breaks to a corporation can be approved with a simple majority. This amendment would require a three-fifths supermajority in each legislative chamber, which means 12 people in the House and six in the Senate could block changes to existing deductions, including the mortgage interest deduction.
Ordóñez called the measure undemocratic and against the interest of the vast majority of Oregonians.
“Measure 104 should be called the Protection Act for Corporate Tax Subsidies and Loopholes, because that’s what it really is,” he said. “It allows special interests to protect the tax subsidies they’ve been getting, such as the mortgage interest deduction. It’s a completely undemocratic policy. It allows a minority of lawmakers to block reforms that are needed. It’s a situation where you have the tyranny of the minority. And the Realtors and those funding Measure 104 want to keep it that way.”
Measure 104 goes before voters in the 2018 general election on Nov. 6. The Oregon Legislature begins its 2019 session on Jan. 22.
Email Executive Editor Joanne Zuhl at joanne@streetroots.org.
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