Chair Nathanson, Vice-Chair Reschke, Vice-Chair Walters, and Members of the Committee,

My name is Daniel Hauser, Deputy Director for the Oregon Center for Public Policy, and I respectfully submit this testimony in support of HB 4136 on behalf of the Center. The Oregon Center for Public Policy is a nonpartisan think tank dedicated to improving the economic outcomes for all Oregonians, particularly low-income families and Oregonians of color, through research and analysis.

The mortgage interest deduction (MID) is another example of how Oregon connects to the federal tax code in regressive, inequitable, costly, and ineffective ways.

• The richest 20 percent of Oregonians claim 57 percent of the benefits of the mortgage interest deduction, with the bottom 60 percent claiming about 15 percent, combined.
• Nationally, white tax filers constitute 67 percent of filers but claim 84 percent of the MID. Black tax filers receive 4 percent of the benefits, but make up 11 percent of families, and Hispanic people are 15 percent of all filers but receive only 7 percent of the MID benefits. The MID worsens racial inequality.
• Moreover, independent analyses have found the MID is not even effective at increasing homeownership rates and instead subsidizes home purchases that would happen regardless. Worse still, researchers point out that the MID drives up housing prices, making homes less affordable for low- and middle-income families.
• The MID is estimated to cost Oregon more than a billion dollars in our current budget period. Imagine the impact that could have actually addressing our housing crisis.

All of this makes it clear Oregon should fully reform and revise how the MID functions to target it at families in the greatest need of support affording a home, make it less costly, and ensure it is actually improving homeownership rates.

That brings me to HB 4136. Shockingly, the MID is not even limited to someone’s primary residence but is usable for a vacation home. Limiting the MID to someone’s primary residence is a rational way of trimming a small amount of its inequitable design and prioritizing something far more crucial for public benefit – getting people in their first home. There are a few technical aspects to keep in mind.

First, a rental property receives different tax treatment than a home used fully as a vacation home. If a tax filer has a vacation home they use more than 14 days per year, some or all of the mortgage interest is claimed through their personal income tax itemized deduction. If they rent it out more than 14 days, then they share the interest deduction between the rental business and their individual MID. If they rent it out year-round and do not personally stay in the vacation home, then it is all deducted from their rental income.

Second, if people have two mortgages because they are buying a new home while selling their old one, they can receive the benefit for both mortgages within the carve out in Section 1 of the bill.

Third, the bill explicitly focuses the revenues into a Treasury fund that is separate and distinct from the General Fund, known as the Oregon Homeownership Opportunity Fund.

Finally, tax filers will continue to deduct their mortgage interest on a vacation home used only for personal gain of their federal income taxes – in many cases more than three times the value of Oregon income tax deductions.

While we would much prefer to see broader reform of the MID, we support this small, incremental step forward.

I urge you to support HB 4136 to redirect existing resources towards a higher priority – people’s home and not their vacation house.