The Costly and Ineffective Home Ownership Subsidy

Lawmakers must recognize that Oregonians cannot afford to continue subsidizing million-dollar mortgages that leave many homeowners without assistance.

(SILVERTON) - Did you hear about Oregon's whopping spending increase for a subsidized housing program?

Chances are you didn't, because this spending program -- the home mortgage interest deduction -- exists in the shadows of the tax code. Its results are not something legislators can brag about.

With the state confronting a large revenue shortfall, it's high time that lawmakers begin the process of better targeting subsidies for home ownership to those who need them and stop subsidizing those who can afford million-dollar mortgages.

Residing in the state tax code, the home mortgage interest deduction is a form of state spending called a "tax expenditure." Instead of directly subsidizing housing construction or handing a check to a home buyer, the state allows home buyers to deduct their mortgage interest when calculating their taxable income, thereby lowering their housing costs.

The goal of the home mortgage interest subsidy is laudable. Home ownership can be an important component of building economic opportunity.

The problem is that the subsidy is ineffectual in promoting homeownership and costly. These flaws should spur reform any time, but especially when the state faces a $3.5 billion revenue shortfall.

As currently structured, the home mortgage interest deduction is ineffectual because it's not targeted to assist those who most need help purchasing a home. Of all Oregon households, only about one-third benefit from the program. Only about 13 percent of taxpayers earning less than $40,000 per year claim the deduction, even though that group represents more than half of all Oregon taxpayers. That's not surprising, since relatively few low- to middle-income taxpayers itemize their deductions on tax returns.

Thus, the home mortgage interest tax deduction is of no use to those who need the most help achieving a piece of the American Dream.

Meanwhile, people who can afford million-dollar mortgages receive a taxpayer subsidy from the deduction. These fortunate Oregonians surely enjoy the subsidy, but they don't need it.

The subsidy is also costly, and those costs can pile up quickly and unexpectedly. In 2008, the Oregon Department of Revenue expected the home mortgage interest deduction would cost the state $905 million in the current two-year budget period (2009-11). However, they recently revised the projection to $1.3 billion. And state officials say the subsidy will cost $1.6 billion for the upcoming 2011-13 budget period, almost twice as expensive as in 2007-2009.

The subsidy cries out for reform. If lawmakers were to revamp the subsidy this session, some of the tax savings could be used to avoid deep cuts to education, health care and other public services.

The subsidy's been on the books for years and has escaped meaningful review. At the very least, the current legislature should "sunset" the program. Establishing an expiration date practically would force lawmakers to review the spending policy in the near future and consider better ways of promoting home ownership.

A review might conclude that those tax dollars should be put to better uses than helping people with million-dollar mortgages. Lawmakers may conclude that it's better to use the resources to help first-time home buyers and those with modest means purchase homes. The savings from a more efficient and effective home ownership subsidy program could be used to expand opportunity for Oregonians in other ways. For instance, the savings could be invested in improving education from pre-K through college, upgrading the state's infrastructure, reducing poverty or expanding health coverage.

Oregonians cannot afford to continue subsidizing million-dollar mortgages and leaving many homeowners without assistance. Lawmakers must restructure the home mortgage interest deduction to better serve Oregonians' spending priorities.

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Douglas Benson February 27, 2011 9:19 am (Pacific time)

Hey taxed or whatever your name is . If youre so concerned about goverment spending how about bitching about the real costly goverment programs .Defense, Homeland Sec. ,Wars,the TSA corprate subsidies etc.?

Douglas Benson February 26, 2011 9:17 am (Pacific time)

Hell no! This deduction helped me own a home . True now that the ammount I pay now that due to lower intrest rates makes the standard deduction easier ,when my intrest was high it was a godsend . 200 a month in tax relief made it the same or less than renting . I would support ending this deduction for higher priced homes say 300,000 or more,these people can pay more and they should or they should buy a less expensive home . This budget shortfall is a trick .Huge tax cuts for the really large businesses along with infristructure, land sales at next to nothing etc. putting the burden on the little people to support them all so the state can collect taxes and fees from WORKERS WAGES. Intel is building right now because the taxpayers are footing the bill giving away millions in taxes ,power,water,street,sewer hookups etc. I wouldnt be suprised if they got tax exemptions from the feds as well . This is CLASS WARFARE,worldwide .Cut taxes for the wealthy and cry budget shortfall.Cut services and expect the little people to pay more . We are saying NO MORE! TAX THE RICH! I would say peace but THIS IS WAR! Who has the power? We have the power ! PEOPLE POWER!Come on down to the capitol today at noon and add your voice .

taxed February 26, 2011 7:52 am (Pacific time)

From web news articles in the past few months: Vermont just rebuilt some existing welfare housing that had been trashed since the last time it was rebuilt in the late 1980's for millions of taxpayer dollars. This time they spent $237,000 of taxpayer money PER APARTMENT. This is much more than $173,000 average value of houses in VT. In Eagle county, Colorado, $14,200,000 was just spent for reconditioning 72 apartments = $197,222 in reconditioning PER APARTMENT. Average house in Colorado is worth $166,600. In Calif, Palos Verdes Peninsula, $13,000,000 was just spent for 34 apartments = $382,352 PER APARTMENT. Average house in the state is worth $211,500. In DC, Washington Highlands, 10 families just moved into subsidized apartments, complete with hardwood floors, washer-dryers, stainless steel appliances. For some, this was their reward for years of substance abuse - PCP and crack use. The newly renovated hi-rise welfare apartments in the business district of St. Paul Minnesota. The numbers work out to $204,379 PER APARTMENT. $28 million, top-to-bottom rehab, for 137 apartments. Average home value in Minn is $198,800. Average in the US is $167,500, per the chart on this web site - http://www.mortgage-lenders-plus.com/mortgage/minnesota-mortgage-lenders.html The lease in these apartments covers heat, water, air-conditioning and a washer-dryer in every unit, in addition to access to a community room and lounge with satellite television, a small computer room and a fitness center. Wow, I don't have all that in my house and what I do have - I have to earn and pay for myself. I earn the money for these tenants benefits by expending a big part of my life working for it, it is not just handed to me. Quotes from the article: "...residents are expected to complete 20 hours per week of work, school or volunteering." Gee, I hope this isn't a strain on them. "the city helped get it on the National Register of Historic Places, making it eligible for federal tax credits toward historic preservation." That means the taxpayers will pay more taxes to make up for the credits this place gets. I wonder how many of the residents also get other things that I am taxed to pay for - food stamps, WIC, free school lunches for their kids, Medicaid, free cell phones, SSI, EIC, etc....????? The point is we are spending much more on welfare housing per apartment than the value of a lot of people's homes. What part of that is fair? The taxpayers are getting hosed while the poor and low income are getting another free ride on top of food stamps, Medicaid, WIC, free school lunches, TANF, SSI, etc.... Can anybody tell me? What part of that is fair?

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