Obama may limit tax breaks for rich

By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney) -- President Obama on Monday may propose limiting tax breaks for the rich, budget and policy experts say.

In the president's past two budget requests, he called for limits on the value of itemized deductions for those in the top two tax brackets. That would include deductions for mortgage interest and charitable contributions.

The proposals went nowhere -- in part because charities claimed that their funding, already hurt by the recession, would suffer even more. And the lobbyist-heavy real estate industry spoke out against it as well.

But this time, the proposal might be better received given the increased political and public awareness of U.S. debt and an improved economic climate, said Sean West, a U.S. policy analyst at the Eurasia Group.

"He's always called for it, but now there's a new narrative," West said.

In particular, West said, the president's bipartisan debt commission raised awareness that the country gives up more than $1 trillion a year in revenue because of hundreds of tax breaks, many of which benefit some investments and taxpayers more than others.

Take the mortgage interest deduction: It is seen as a big spur to housing sales, which in turn can bolster big swaths of the economy. But some argue the generous deduction contributed to an unstable rise in home prices, and tax statistics show that the wealthiest households disproportionately benefit.

For example, 32% of the revenue lost in 2008 because of the deduction went to households with incomes over $200,000, even though they accounted for only 11% of the returns claiming the deduction.

In the past, Obama has proposed reducing itemized deductions for high-income taxpayers - by limiting their value to 28% of every dollar that is deductible.

Currently, those in the top two tax brackets (33% and 35%) have taxable income of at least $172,000 if they're single or $209,000 if they're married filing jointly. These filers can save either 33% or 35% of every itemized deductible dollar. But under Obama's proposal they would only be able to save 28%.

The Congressional Budget Office last year estimated that such a proposal could raise nearly $300 billion over 10 years.

If the same proposal is included in the president's 2012 budget request, that will make it easier to show that his blueprint for the next decade is fiscally responsible because the additional revenue could be used to reduce the deficit or pay for new investments.

--An earlier version of this story incorrectly stated that those in the top two tax brackets have taxable income of at least $374,000 if they're married filing jointly. Their correct taxable income is $209,000.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,810.06 91.06 0.51%
Nasdaq 4,712.97 11.10 0.24%
S&P 500 2,063.50 10.75 0.52%
Treasuries 2.32 -0.02 -0.86%
Data as of 11:06am ET
Company Price Change % Change
Bank of America Corp... 17.12 0.12 0.71%
Kinder Morgan Inc 39.75 -0.17 -0.43%
Apple Inc 116.47 0.16 0.14%
Intel Corp 35.59 -0.36 -1.00%
Microsoft Corp 47.98 -0.72 -1.48%
Data as of Nov 21

Sections

This arrangement, announced Friday, illustrates how the lines have blurred between traditional TV networks and newfangled options like Netflix. More

The Obama administration is touting that its immigration action will boost wages. But the hike amounts to only $170 a year by 2024. More

Obama doesn't have the authority to create a startup visa, but part of his reform announcement could include a workaround for entrepreneurs: 'parole status.' More

Nearly half of all Americans say there's a chance they'll have to work during a holiday between Thanksgiving and New Year's, according to a new poll. And one in four say they'll have to work whether they want to or not. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.