The landlord tax break is the wrong way to help renters

Commentary Photo by Sean Benesh on

Photo by Sean Benesh on

March 17, 2021By Daniel Hauser

There is no doubt that many renters and landlords in Oregon are struggling to survive during this pandemic and economic crisis. Landlords have costs they must cover, but many renters simply can’t afford the rent. For now, an eviction moratorium has prevented mass evictions. But a crisis has been brewing and requires legislative action.

Unfortunately, a high-profile bill introduced in the current legislative session is the wrong solution to this very real problem. Senate Bill 330 would create an unlimited tax credit for landlords who forgive rental debt their tenants owe. Unfortunately, this new tax credit fails to target help at the landlords or tenants in greatest need, while issuing a blank check that could cost all Oregonians dearly in the years to come. It could also cut back on federal rent assistance used in Oregon, while also potentially reducing federal aid from the newly enacted stimulus package.

SB 330 fails to help the landlords and tenants in greatest need and instead subsidizes large corporate landlords

If you want to immediately help landlords struggling to stay up on mortgage payments and other debts, this policy is the wrong way to do it — the help takes too long to arrive. The bill establishes a tax credit equal to the rent forgiven by the landlord, available in 20 percent increments for each of the next five tax years. The tax credit, however, can only be applied to reduce taxes owed. Therefore, if the landlord lost money this year, they cannot use the tax credit for this tax year. They would instead be able to “carry forward” the tax credit and would have up to five tax years to use it when they are once again profitable. But right now, when some landlords most need help, the tax credit would be of no use. A policy to support landlords in need of cash today should ensure that support is immediate, rather than doled out in future years.

So, who does this policy really benefit? Many rental units in Oregon are owned by large Wall Street investment funds. Their deep pockets and access to capital markets allow them to ride out the crisis and benefit from the carry forward structure of the tax credit. Oregon should not use our precious resources to give tax credits to these large, profitable, investors.

SB 330 is a blank check that could cost Oregonians dearly

We do not yet know how much revenue Oregon would lose to this tax credit. By one estimate, the total amount of back rent that Oregonians owe is in the hundreds of millions of dollars. Moving this legislation forward without any limit on the cost could cripple Oregon’s ability to invest in child care, health care, and other essentials over the next decade.

The tax credit, moreover, could shift costs that might otherwise be borne by the federal government onto the state. Landlords could choose to claim this state tax credit instead of taking advantage of federal rent assistance opportunities. This scenario would leave the state funding these costs instead of Congress and eat up scarce state resources the state might otherwise use to support essential services.

The proposed landlord tax break could cost Oregon additional federal funding. Congress recently passed the American Rescue Plan, which grants billions in aid to state and local governments. Included in this package is a provision that reduces federal aid to states that cut taxes, as a way of ensuring that the federal aid goes to supporting essential public services, rather than paying for reckless tax cuts that often benefit the most well-off. This provision reduces federal aid in an amount equal to a state’s net tax cuts. This means that every dollar Oregon spends on the landlord tax break could cost the state the same amount in lost federal funds unless the credit is explicitly paid for with Oregon revenues. The math on the landlord tax break doesn’t add up.

SB 330 is a complex, risky tax credit program

There are significant administrative and compliance costs associated with creating this new tax credit. How will the Department of Revenue know that a landlord didn’t access a federal rent assistance program, local housing assistance programs, or the state’s Landlord Compensation Fund before claiming the tax credit for the same debt arrears? The department will need new data-sharing agreements, additional auditors, and more to even give this new credit a veneer of credibility and fiscal stewardship.

Administrative complexity is one of the reasons for the debacle that was the Business Energy Tax Credit (BETC) program, a tax credit whose costs grew out of control and spurred fraudulent activity.

Oregon already has in place a program to help landlords; lawmakers should bolster it

Oregon already has a targeted program to pay down rent arrears in Oregon, the Landlord Compensation Fund. An expansion of this program would allow the legislature to provide additional help to small, struggling landlords and ensure tenants’ rental debts are wiped clean. This approach would keep costs under control so that it is balanced with the state’s other priorities.

The Oregon legislature does need to help tenants and landlords who have accrued significant debt during the pandemic. A poorly targeted and potentially very expensive tax credit is the wrong way to do it.

Posted in Housing, Taxes.

More about: housing, tax expenditures