Audit Finds Mortgage Tax Deduction Inequitable

An audit released today by the Secretary of State’s Office exposed the 99-year-old home mortgage interest deduction as a deeply inequitable and regressive tax policy. The mortgage interest deduction allows some, but not all, homeowners to reduce their taxable income by the amount of interest paid on mortgages up to $750,000, including mortgages on vacation homes.

While houselessness and the lack of affordable housing impact communities all over the state, auditors found the state’s largest housing subsidy mostly benefits wealthy and white Oregonians in urban counties. Additionally, the mortgage interest deduction receives no state-level evaluation as to whether it is meeting its purpose, limiting accountability for its inequitable outcomes.

“The affordable housing crisis is squeezing families across Oregon while the state’s largest spending on housing primarily flows to wealthy homeowners in the metro area. That is indefensible,” said Secretary of State Shemia Fagan. “Every dollar spent keeping seniors and working families in their homes or helping renters stay housed has been scrutinized and debated by lawmakers. Meanwhile billions of dollars just walk out the backdoor with no questions asked. I can’t think of a worse example of waste and systemic inequality than that.”

The mortgage interest deduction has been law in Oregon since 1923 but has never been audited. This biennium alone, the deduction is expected to cost taxpayers over $1.1 billion. Auditors analyzed the benefits of the mortgage interest deduction by income, geography, and race and found a disproportionate share of the benefits flow to the wealthiest taxpayers.

  • The top 1% of income earners receive more benefit from the policy than the 727,000 taxpayers in the bottom 40% combined.
  • A disproportionate share of the mortgage interest deduction benefits by taxpayer population go to seven counties: Clackamas, Washington, Deschutes, Columbia, Multnomah, and Yamhill. All are defined as urban by OHCS.
  • Black, Native American and Latine Oregonians, receive disproportionately less benefits than white Oregonians.
  • No evidence exists that the original intent of the policy was to promote homeownership. Most of the housing experts interviewed for this audit said the policy does not address the primary barriers experienced by low- to moderate-income homebuyers, such as high prices, closing costs and access to credit.

Auditors recommend the Legislature identify a clear purpose for the mortgage interest deduction in statute and determine if changes are necessary to ensure the purpose is met. Auditors also recommend the Legislature identify a state agency to be responsible for regularly evaluating the policy.

While the Department of Revenue is responsible for administering Oregon tax law, changing this policy would require legislative action.

Read the full audit on the Secretary of State website 

Source: Oregon Secretary of State

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