In recent years President Obama has repeatedly suggested limiting the tax benefits on itemized deductions to 28 percent, a proposal that the Congress Budget Office has estimated could raise $293 billion over 10 years.
Diane Lim Rogers, chief economist for The Concord Coalition, calls it a “great idea” because it would reduce a large tax subsidy that favors higher-income households – while at the same time improving the economic efficiency of the tax code and reducing the government’s need to borrow more money.
In its new budget proposal for Fiscal 2013, Rogers notes, the administration expands on this idea by proposing that the 28 percent limit apply not only to itemized deductions but to a host of other tax breaks that disproportionately benefit upper-income taxpayers while pumping up the federal deficit. These include breaks for employer-sponsored health insurance and retirement contributions.
“All these current tax preferences would be limited to that which a taxpayer in the 28 percent tax bracket could enjoy,” Rogers writes in a blog posting today. “As a result, the administration estimates the broader proposal would raise $584 billion over 10 years—about double the revenue raised from the itemized deduction proposal alone.”
The itemized deduction limit, she says, would be “a piece of cake to implement.” But she warns that implementing the broader part of the President’s new proposal would be more challenging.