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Tuesday
Sep132011

Presidential Hopeful Tax Plans: President Obama: Update re 28% deduction limit

Following up on President Obama's tax plan

The Tax Policy Center has published a post that fleshes out some of the implications of President Obama's proposed 28% cap on deductions.  From the post

"Not only would it reduce tax savings for mortgages, charitable gifts, high medical costs, and the like, it would also curb tax breaks for owners of municipal bonds, workers who buy health insurance, and those who earn money overseas...

But Obama does pick and choose the preferences he wants to target. He nails all itemized deductions, all right, but he also goes after some–but not all–above the line deductions. Of the roughly two dozen write-offs available to those who take the standard deduction, Obama targets just eight, including health insurance for the self-employed, medical savings accounts, health savings accounts, and some higher education expenses.

He also reduces the benefit of two other hot-button breaks—the tax exclusions for municipal bond interest and the value of employer-sponsored health insurance. In other words, for those making more than $200,000, some muni bond interest and some of the value of their medical coverage would be taxed.     

However, Obama would protect other exclusions, including those for retirement savings. Picking winners and losers this way is likely to defeat any claims of rough justice and make passing the plan that much tougher."