2013-2015 State of Oregon Tax Expenditures: Home Ownership Gets 95% of Housing Related Tax Expenditures.

The new 2013-2015 State of Oregon Tax Expenditure reports are out HERE, showing a breakout of $36 billion in planned tax expenditures, an increase of $3 billion from the last biennium. 

As is the case every other two years I have prepared a summary of housing related tax expenditures and created an Excel workbook HERE and embedded below. It also includes ALL tax expenditures and a pivot table.

Observations: 

1. State tax expenditures for home ownership are expected to increase by $214.5 million, to $2.087 BILLION.
2. State tax expenditures for rental housing are expected to remain the same at $119.6 million.
3. Expenditures for home ownership represent 95% of total housing related tax expenditures for the state of Oregon, with the rental housing share at 5%.

Originally created and posted on the Oregon Housing Blog.

2010 Federal Income Tax Home Mortgage Interest Deductions Were Down $104 Billion/21% From 2007 Peak.

The Excel table embedded below from my Excel Public SkyDrive folder shows comparisons of home mortgage interest deductions from 2004-2010 taken from federal individual tax returns. (Direct link to Excel file is HERE).

Observations:

Compared to Peak Year of 2007, in 2010:

1. The 36.8 million returns that claimed the home mortgage interest deduction was a reduction of 10% and a reduction of nearly 3.9 million returns from the nearly 40.8 million returns that claimed the deduction in 2007.
2. The total number of returns (with or without mortgage deductions) was a reduction of 4% (more than 5 million fewer returns). 
3. The total amount of home mortgage interest deduction claimed [$387 billion] was down by 21% ( $104 billion) from the $491 billion claimed in 2007.
4. The $10,497 average amount of home mortgage interest deduction per return (where the deduction was claimed) was down by 13% (-$1,555).

Note: Data taken from Table 1 found on PDF page 176 of SOI Bulletin (link to Bulletin is in the Excel file).

Originally created and posted on the Oregon Housing Blog.

Effective Tax Rates, Revisited.

With recent discussions about Romney's 15% effective income tax rate, this is good time to review a June 2010 post. 

That post HERE includes data derived from CBO data on effective tax rates and shows that for many, tax rates have been declining and NOT increasing.

Note that using income tax alone, the 2007 effective INCOME tax rate for middle income children with families was 2.7% and increased to 15.2% when payroll taxes were included.

Originally created and posted on the Oregon Housing Blog.

New Joint Tax Committee Tax Expenditure Estimates; Big 3 Home Ownership Tax Costs to Increase by $49 Billion Over 4 Years.

New estimates are available HERE. [ Tip of hat to Novogradac for first alert that was report was available via Twitter].

Haven't had a chance to compare to other estimates, but  table pasted below shows big three home ownership related federal tax expenditure estimates: 

Click to Enlarge

Observations: 

1. 2012-2011 total change is modest 1.1% because projected property tax deductions are estimated to go down by 37.9% 
2. In 2015 estimate is that big three home ownership expenditures will reach $169.7 BILLION annually. This is an INCREASE of  $49.36 billion/41% from 2011.
3. In 2015 estimate is that mortgage interest deduction alone will reach $113.4 billion, an INCREASE of $35.8 billion/46.1% from 2011.
4. Not in table: If Oregon's share of total federal tax expenditures is 1%, 2015 Oregon federal tax expenditures for these three home ownership tax expenditures would be $1.697 Billion.

Originally created and posted on the Oregon Housing Blog.

Kanas Governor Proposes Elimination of Mortgage Interest Tax Deduction in New State Budget Proposal.

Kansas City Star story HERE.

Governor's Budget document is HERE.

For the record, I'm not a fan of Governor Brownback and there are likely portions of his budget that I would have big problems with [for example, eliminating individual state income tax on non-wage business income (e.g., from LLCs and S-corps)]. 

With that said, it IS a bold measure to propose in his budget the elimination of the mortgage interest and other tax deductions.

Originally created and posted on the Oregon Housing Blog.

Estimated Direct Annual Federal and State Home Ownership Tax Expenditures in Oregon: $2.39 Billion, $3,500 Average per Mortgage.

I have prepared a table HERE that shows my estimate of $2.39 Billion in annual Federal and State direct tax expenditures in Oregon for home ownership.  

Included are three types of tax expenditures: 

1. Mortgage Interest
2. Property Taxes 
3. Avoidance of Capital Gains Tax on Sale of Principal Residences

Note: These DIRECT expenditures do NOT include a fourth indirect tax expenditure--an additional $2.97 Billion total Oregon cost that would result from an "imputed rent for homeowners" calculation [see note 3 below under Sources and Methods for more detail].   (Imputed rent is the amount of income homeowners could earn if they chose to rent their home instead of live in it). If those costs were included the total annual Oregon home ownership tax expenditures would increase to $5.363 Billion.

Some Observations: 

1. Federal tax expenditures for these three items account for $1.289 Billion or 54% of the total direct Federal/State home ownership tax expenditures. 
2. Oregon tax expenditures for these three items account for $1.104 Billion or 46% of the total direct Federal/State home ownership tax expenditures.
3. The combined Federal/State tax expenditure for the mortgage interest deduction alone adds up to $1.615 Billion annually or 67% of total direct Federal/State home ownership tax expenditures. 
4. Dividing these tax expenditures by the ACS 5 year estimated number of owner occupied mortgages results in an estimate that the ANNUAL average tax expenditure per Oregon owner occupied mortgage is $3,564. ($1,920 federal/ $1,645 state).
5. Not shown in table: IF the indirect "imputed rent for homeowners" costs were included, then average ANNUAL average Oregon tax expenditure per mortgage would increase to $7,987 ($4,868 Federal/$3,119 State) 

Sources/Methods

1. For Oregon state tax expenditures I used the 2011-2013 Tax Expenditure Report HERE.
2. For Oregon's share of Federal tax expenditures I used 1% of the Federal tax expenditure estimates referenced in the Pew Charitable Trusts report, Cost and Benefits of Housing Tax Subsidies, found HERE.  Executive summary of this report is HERE.  [Estimate is conservative; 1% is below Oregon's share of national population].
3. For the indirect cost estimate for imputed rent I took 1/2 of 1% of the national total in the PEW report as the Oregon state tax expenditure ($990 million). Adding that to 1% of the national total federal tax expenditure ($198 Billion x 1% = $1.98 billion) produced a total Oregon federal and state tax expenditure estimate of $2.97 billion. 
4. Estimate of Oregon owner occupied home owners with a mortgage is from American Community Survey 5 year 2006-2010 table HERE. 

Originally created and posted on the Oregon Housing Blog.

Home Mortgage Interest Deduction: 2.3 Million Decline in Number of Filers, Amount Still Tops $470 Billion.

In looking at the new US 2012 US Statistical Abstract I noticed that the number of filers and the amount of the mortgage deduction claimed on federal returns had declined from 2007-2008.

I went back and pulled similar data for select years and prepared the tables HERE that show the number of filers who claimed the deduction, the total amount of the deduction, and the average amount per filer. (No inflation adjustments were made to these figures).

Observations: 

From 2000-2008 

1. The number of filers claiming the mortgage interest deduction increased by 3.77 million (10.8 %) to 38,684,000 filers.
2. The amount of the deduction claimed increased by $170.515 BILLION , (56.8%)  to $470.478 BILLION.
3. The average amount per filer increased by $3,571 (41.6%) to $12,162.

From 2007-2008

1. The number of filers claiming the mortgage interest deduction decreased by 2.093 million (5.1%).
2. The amount of the deduction claimed decreased by $20.954 BILLION (4.3%).
3. The average amount per filer still increased by $110 (.9%).

Notes: 

1. The reduction in filers and the amount from 2007-2008 is likely the result a reduction in the number of homeowners; a drop in income that reduced/eliminated the value of the home mortgage deduction for households who remained as homeowners; AND perhaps a decline in the total mortgage interest paid because of refinancing. 
2. The Fall 2011 IRS SOI publication will have 2009 filing data. I would expect to see a further erosion in the number of filers claiming the home mortgage deduction and the total amount of that deduction. 

Originally created and posted on the Oregon Housing Blog.

Rethinking the Mortgage Interest Deduction Webcast on Thursday.

Tax Policy Center webcast information is HERE. 

Time is 9 to 10:30 AM PACIFIC DST, you can send questions in advance to moderator.

Related Urban Institute MetroTrends blog post "Who Gets the Biggest Housing Subsidies " is HERE, includes graphic pasted into this post showing who benefits (click image to see larger version).

Originally created and posted on the Oregon Housing Blog.

Tax Deadbeats Get Recovery Funds, Congress Could Fix but Won't.

In a post 3 1/2 years ago HERE I pointed out that contractors with unpaid tax obligations had received millions in Medicaid reimbursements because Congress had not authorized the witholding of those payments. 

Yesterday HERE the GAO reported that Recovery Act contractors also had millions in unpaid federal tax obligations, and I am sure that some in Congress will report that they are "shocked" by this news.  

If they actually read the report response from the Recovery Board they should not be shocked:

The issue of federal money being awarded to federal tax delinquents is longstanding and has been examined by GAO for more than a decade. As a result, the Recovery Board encourages GAO to make recommendations on ways Congress or the administration could prevent those with delinquent federal tax debt from obtaining federal awards through contracts, grants or other assistance. As GAO states, federal law does not prohibit a contractor with unpaid federal taxes from receiving contracts from the government. Similarly, federal regulations do not require contracting officers to specifically consider tax delinquencies when determining whether an entity is responsible to do business with the government unless it was specifically suspended or debarred for certain actions, such as tax evasion. Additionally, there are no laws or government wide policies that prohibit the award of grants or other federal assistance to applicants with unpaid federal taxes.

Shouldn't any form of tax reform require that after a phase in period ALL government contractors and recipients of [non means tested] federal assistance MUST be current on any unpaid federal tax obligations? Put more plainly, the policy could be stated as "If you Owe, No Federal Dough".

Originally created and posted on the Oregon Housing Blog.

New IRS Guidance on Homeowner Tax Treatment of Hardest Hit Fund Payments.

IRS Notice 2011-14 is HERE.  

I DON'T offer tax guidance, but seems to me the "money" excerpt from the Notice is : 

....payments made under the State Programs, the EHLP, and the SSSPs to or on behalf of a homeowner are excluded from gross income under the general welfare exclusion. For taxable years 2010, 2011, and 2012, this notice provides a safe harbor method pursuant to which a homeowner may deduct on his or her federal income tax return an amount equal to the sum of all payments the homeowner actually makes during that year to the mortgage servicer, HUD, or the State HFA on the home mortgage, but not in excess of the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received), box 4 (mortgage insurance premiums) for years 2010 and 2011 only, and box 5 (real property taxes). This safe harbor method of computing the homeowner’s deduction applies for a taxable year if (1) the homeowner meets the requirements of §§ 163 and 164 to deduct all of the mortgage interest on the loan and all of the real property taxes on the principal residence; and (2) the homeowner participates in the EHLP, an SSSP, or a State Program..

Originally created and posted on the Oregon Housing Blog. 

Center for American Progress Take on Reformed Housing Finance System.

Web page for their report, A Responsible Market for Housing Finance, is HERE; full report is HERE; executive summary is HERE.

Originally created and posted on the Oregon Housing Blog.

Biggest Federal Housing Program: Mortgage Interest Deduction.

Interesting brief on largest housing program of federal government, mortgage interest deduction, HERE. (MID is also by far the largest STATE housing program in Oregon).  

Pic above shows that tax savings increase by income level. 

Originally created and posted on the Oregon Housing Blog. 

NLIHC Has Some Ideas on Reusing Mortgage Deduction Money for Low Income Housing.

Memo to Members item is HERE; direct link to letter sent to President is HERE.

Originally created and posted on the Oregon Housing Blog.

Homebuilders Get In Front of Budget Wave with "Save my Mortgage Interest Deduction" Website.

Website is HERE, clearly an astro turf grass root campaign designed to head off possible budget efforts to pare back the home mortgage deduction.

No word if they have started the "Save my Tax Carry Back" website yet:]

Including construction, retail and manufacturing businesses hardest hit by the drop off in consumer spending, the net operating loss carry back extension is expected to produce tax refunds of $33.2 billion. Residential construction contractors who will get the biggest benefits from this legislation include Beazer Homes USA, Standard Pacific Corp., Hovnanian Enterprises, Brookfield Homes, Pulte/Centex, KB Home, toll Brothers, Lennar Corp. and DR Horton. Several of these builders are expected to get tax refunds larger than their total market capitalization.

Originally created and posted on the Oregon Housing Blog.

New GAO Report on Homebuyer Tax Credits; 38k+ Oregon Families Got $278+ Million.

Thanks to NLIHC tweet, GAO report is HERE. 

Report includes details on three different programs, with lots of state data and rankings. Three programs were:

1. The Housing Act version provided taxpayers a refundable tax credit, meaning it is paid even if there is no tax liability or if the credit exceeds any tax due, equal to 10 percent of the purchase price of a home, up to a maximum of $7,500. Taxpayers must repay the credit over 15 years beginning in the 2011 filing season.
2. The Recovery Act version provided taxpayers a refundable tax credit equal to 10 percent of the purchase price of a home, but increased the maximum credit to $8,000 with a waiver of the repayment provision for purchases in 2009. However, taxpayers are still required to repay the credit if the home is resold or ceases to be the primary residence of the taxpayer within 3 years. 
3. The Assistance Act version extended the time frame in which home buyers could claim the Recovery Act version of the credit from November 30, 2009, to April 30, 2010, and included several modifications, such as allowing certain long-term homeowners purchasing new homes to claim a tax credit up to $6,500.

Oddly, I did NOT find a state table that combined totals for all three acts, so I constructed one with my calculations HERE. (Legal sized to accommodate all the columns).

Table shows that

• There were 38,525 Oregon families who used one of the tax credit programs; the claims total was $278,672,100.
• The biggest single program was the Recovery Act first time home buyer program with 19,531 Oregon families claiming $145,667,245.

Total revenue losses to federal government through 2019 are estimated at $22 billion.

Originally created and posted on the Oregon Housing Blog.

CBO Analysis of Federal Tax Rates: Middle Income Average Effective Tax Rates Have DECLINED.

A new CBO set of reports on effective federal tax rates causes one to wonder about the need for additional tax cuts (and the disconnect between perception and reality). Note that data show is for average EFFECTIVE tax rates, and NOT incremental rates for different tax brackets.

CBO has LOTS of tables and analysis HERE(scroll to bottom).

Director's Blog post with a summary of findings is HERE.

I prepared two graphs HERE with focus on middle income families.

For middle income ("middle quintile") households the graphs illustrate for 1990, 2000, and 2007

1.Effective Average Federal Income Tax rates.(pg 2).

2.Effective Average TOTAL Federal Tax tax rates. (pg 1).

FOR

• Households with Children
• Elderly Households
• Non Elderly Households (w/o children)

In ALL cases in 2007 both the average effective federal income tax rate AND the total average effective federal tax rate has DECLINED from both 1990 and 2000 levels.  

Also in all cases the average effective federal tax rate for the elderly is the lowest, and the average effective federal tax rate is the highest for non elderly without children.

Originally created and posted on the Oregon Housing Blog.

Tax Bills Lowest Since 1950.

Hard for some to believe, but USA Today has the story HERE.

Amid complaints about high taxes and calls for a smaller government, Americans paid their lowest level of taxes last year since Harry Truman's presidency, a USA TODAY analysis of federal data found.

Some conservative political movements such as the "Tea Party" have criticized federal spending as being out of control. While spending is up, taxes have fallen to exceptionally low levels.

Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.

Taxes paid have fallen much faster than income in this recession. Personal income fell 2% last year. Taxes paid dropped 23%. The BEA classifies Social Security taxes as insurance payments and excludes them from the tax calculation.

Why the tax bite has eased:

• Stimulus law. One-third of last year's $862 billion economic stimulus went for tax cuts. Biggest reduction: The Making Work Pay tax credit reduced income taxes $800 for married couples earning up to $150,000.

• Progressive tax rates. Presidents Clinton and Bush pushed through a series of tax changes — credits, lower rates, higher exemptions — that slashed income taxes for poor and middle-class families. A drop in income now can trigger big tax breaks and sharply lower rates, sometimes falling to zero.
• Sales tax. Consumers cut spending sharply in this downturn, thereby paying less in sales taxes.

Originally created and posted on the Oregon Housing Blog.

It Ain't Just Homebuilders Cashing in on the 5 Year Loss Carryback.

I did a recent post HERE about large national home builders claiming 5 year loss carry backs as part of recent legislation.

Money Morning has story HERE, based on WSJ reporting, saying that:

1. Total revenue losses for the federal government for these tax breaks totals $33 BILLION;
2. Claims are coming from a variety of companies, including a possible $1.4 billion to JP Morgan Chase for their takeover of Washington Mutual. (This is occurring despite legislative intent to avoid use of the carry back provisions for companies receiving TARP funding).
   
3. A CBO analysis HERE, done prior to the passage of the legislation, indicated that this form of tax relief would have limited impact. As summarized in the Money Morning report:

The provision for greater tax-loss carry backs would result in a large up-front cost to the government, but the effect of that provision on business spending would probably be small because it primarily would affect firms’ after-tax income rather than their marginal incentives for new investment. Therefore, the effect of the provision on revenues would be significantly greater than its effect on the economy.

Originally created and posted on the Oregon Housing Blog.

My Projection: Avg New Home Sold in Portland Metro Results in Government Loss of $401 Per Month In Income Tax Revenue.

Last week the Oregonian Front Porch blog included a Home Builder Association provided PR that included some projected revenue impacts from new home construction in the Portland Metro area. (See item #5 HERE).

I thought it might be informative to use the Home Builder Association projected sales price and property taxes and do a projection of what revenue would be lost to the state and federal governments as a result of income tax deductions for property taxes and mortgage interest. (As Washington State does not have state income tax the state income tax impacts I calculated would NOT apply in Washington State portion of Portland Metro area).

My assumptions (more detail in the linked document below):

• LTV of 80%
• Loan rate of 6%, 30 year fixed
• Sales price and property taxes , same as provided by Home Builders Association
  
• Insurance assumption $100 per month
• Effective federal income tax of 15%, state 5% (both likely are low, resulting in understating revenue loss)
• Annual discount rate of 3%, annual property tax inflation rate of 1%.
• With the interest rate, mortgage and property tax amounts used, family qualifying income would be $95,788, using a "front qualifying ratio" of 29%.

My Projections are HERE: The Purchase of Avg. New Home By Family With a Minimum Income of $95,000+ Results in 30 Year Government Revenue loss/Subsidy Cost of $72,000+ or an Average of $401 Per Month.

• After discounting, total state and federal revenue loss is $72,195; Without discounting loss is much greater at $100,616.
• The discounted revenue loss works out to an average of $4,813 per year, $401 per month; recall that this housing subsidy is for a family with a projected minimal qualifying income of $95,788 per year.
  

Feedback/Sharing of Other Modeling Encouraged
I don't claim to be a tax expert or for that matter a whiz on financial calculations, and therefore encourage others to use the same or different assumptions that I used and to pass along any alternative projections of revenue lost from mortgage interest and property tax deductions.

Originally created and posted on the Oregon Housing Blog.

Latest Builder Earnings Report Increases Tab for New Federal Tax Break (For Just 3 Builders) to $661 Million.

Earnings reported in Bloomberg story HERE for D.R. Horton, a large national builder, show that their earnings were increased by more than $149 million as a result of the change in law last year that allowed a 5 year carry back of losses.

Coupled with $512 million earlier tax carry back earnings increases for LENNAR and KB Home (see earlier post HERE), the total increase in tax carry back earnings increases for these 3 companies now totals $661 million. As I mentioned in earlier post, there is NO requirement for job creation or construction of additional homes associated with this tax break.

Originally created and posted on the Oregon Housing Blog.