My Testimony on the Oregon Proposed MID Reform Bill (SB 976): AFTER REFORM, Homeowner With $225K Income Still Nets $110, 000 in Benefits Over 5 Years.

The Oregon Senate Finance and Revenue Committee has a scheduled April 12th public hearing on SB 976, This bill would impose an income cap that phases out state deduction of mortgage interest at $250,000 and phases in reductions to the deduction beginning at $200,000 of income.  

I constructed an example to show how much benefit would remain for a homeowner with a $720,000 mortgage (below the conforming limit of $726,200) at 6% interest and an income of $225,000.

My testimony in the PDF file HERE and embedded below includes a summary of results and graphs on pages 2 and 3 that provide more detail. 

SHORT VERSION: 

• WITH NO home value appreciation, the $225K income homebuyer retains $110,513 in benefits over the first 5 years, an average of $1,884  a month.  
• $60,505 of those benefits are MID subsidy with the remaining $50,008 in benefits from equity/wealth accumulation resulting from the reduction in mortgage principal.  
• Over the same period, Oregon RENTERS are entitled to ZERO subsidy and ZERO  equity/wealth accumulation. 

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W State Details--In 2014 Federal Income Tax Filers w Incomes $1M+ Got $1.38 Billion in Mortgage Interest Subsidies, $500 Per Month, $6,000 Per Year

Using 2014 IRS SOI data I constructed a PDF file HERE and embedded below which provides my state and US level estimates of the housing subsidies that filers with AGI of $1 million or more received as a result of mortgage interest deductions. 

Observations: 
Nationally

1. 229,000 filers with AGI of $1 million or more reported mortgage interest payments of more than $5 billion. 
2. Filers in this income category had an average tax rate of 27%.
3. Applying that tax rate to the amount of reported mortgage interest results in my calculation that these filers got a combined $1.38 BILLION in housing subsidies from the deduction of mortgage interest. 
4. That combined $1.38 billion in mortgage interest deductions works out to $503 per month, $6,031 in housing subsidies. 
5. This calculation does NOT include the value of property tax income reductions (stay tuned). 

In Oregon

1. 1,770 filers with AGI of $1 million or more reported mortgage interest payments of $34.2 million. 
2. Filers in this income category had an average tax rate of 26%.
3. Applying that tax rate to the amount of reported mortgage interest results in my calculation that these filers got a combined $8.8 million in housing subsidies from the deduction of mortgage interest. 
4. That combined $8.8 million in mortgage interest deductions works out to $417 per month, $4,998 annually in housing subsidies. 

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.

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.

HUD Evidence Matters Newsletter.

I am a bit slow in posting, but Spring 2011 issue of HUD's Evidence Matters newsletter focuses on rental housing.  

Lot's of good stuff, including coverage of Oregon's Network for Affordable Housing [NOAH, see pg 11], and sweet cover pic, HERE.

Originally created and posted on the Oregon Housing Blog.

Two Additional Quick Hits on FY 2012 Budget Non HUD Housing Items.

A couple of NON HUD related housing proposals caught my eye within the FY 2012 Budget Federal Receipts document HERE (PDF page references included): 

p38
Simplify single-family housing mortgage bond targeting requirements.—Current law allows use of tax-exempt private activity bonds to finance qualified mortgages for single-family housing residences, subject to a number of targeting requirements, including, among others: (1) a mortgagor income limitation (generally not more than 115 percent of applicable median family income, increased to 140 percent of such income for certain targeted areas, and also increased for certain high-cost areas); (2) a purchase price limitation (generally not more than 90 percent of average area purchase prices, increased to 110 percent in targeted areas); (3) a refinancing limitation (generally only new mortgages for first-time home buyers are permitted); and (4) a targeted area availability requirement. The Administration proposes to simplify the targeting requirements for tax-exempt qualified mortgage bonds by repealing the purchase price limitation and the refinancing limitation.

P 107
Limit itemized deductions. The Administration is proposing to limit the tax rate at which high-income taxpayers can take itemized deductions to a maximum of 28 percent, affecting married taxpayers with incomes over $250,000 and singles over $200,000. This will reduce the value of tax expenditures for such deductions, which include mortgage interest, state and local taxes, and charitable contributions.

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. 

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.

Homebuyer Tax Credit Extension Cost: $16.7 Billion; My Estimate of TOTAL Federal FY 2009 Home Ownership Subsidy Cost is $512 Billion.

WSJ story about extension cost is HERE.

Extension Senate Bill is S.1678, (I don't yet see an official CBO scoring for that bill).

Below is a PARTIAL listing of FY 09 federal home ownership subsidies, with links to the source document that contains the estimate.

Cost (Billions)	Use
$ 512.9	Total
$ 11.2	Cost of existing home ownership tax credit through mid September @1.4 million users X $8,000.
$ 16.7	Projected Cost of Home ownership Tax Credit Extension.
$ 290	FY 09 estimate for Fannie and Freddie.
$ 75	Estimate of costs for HAMP (Loan Refinance and Modification).
$ 120	Annual home ownership subsidies for mortgage interest and property tax deductions. (see footnote at bottom of page 17).

NOTES:

1. Subsidies for homeowners are NOT just a federal phenomena. My post HERE shows that homeowners get 91% of all housing tax subsidies from the State of Oregon.
2. HAMP costs shown above include multiyear totals; Fannie Freddie estimate may contain some multifamily related costs and costs are reduced in future fiscal years ($25 Billion in FY 2010 instead of $290 Billion in FY 2009).
3. Additional TARP costs associated with fixing financial institution problems caused by single family loan problems are NOT included.
   

Originally created and posted by the Oregon Housing Blog.