Who would a $17K cap on tax deductions affect?
Share Now on:
Mitt Romney says he wants to lower everyone’s tax rate by 20 percent, but his critics argue he hasn’t specified how he could do that without adding to the federal deficit.
But last night, in an interview with a reporter from Denver’s FOX 31 News, Romney talked about one option. There would be a $17,000 limit on how much a taxpayer could deduct.
At a minimum, that would affect “all the people who itemize deductions,” says Richard Kaplan, the Peer and Sarah Pedersen Professor of Law at the University of Illinois. “All of the people who itemize deductions” are about a third of Americans.
“That’s people who have deductions for mortgage interest, charitable contributions, that sort of thing,” Kaplan explains. Things that “exceed the standard deduction.”
The standard deduction is what most Americans take. This year, it is $11,900 if you’re married and filing a joint return or about half that if you’re single.
According to Alan Viard, a tax expert at the American Enterprise Institute, a cap on deductions, by definition, targets the wealthy.
“When you go up to the highest income levels, nearly every household is itemizing,” Viard says.
And if you have a big mortgage, or if you’ve had a lot of medical expenses, those deductions could get you to that $17,000 threshold quickly.
Romney has said he wants to lower tax rates for everyone, and pay for that by closing loopholes and doing away with some deductions. According to Howard Gleckman, with the independent Tax Policy Center, Romney’s new proposal means he gets to avoid hard choices about what deductions to scrap.
“If you say, ‘We’re just going to limit them across the board in some way,’ you don’t have to have a political argument about cutting the mortgage deduction or cutting the charitable deduction,” Gleckman says.
He adds that there’s still a lot we don’t know about Romney’s overall tax plan, but floating a proposal like this one may help him make in-roads with middle class voters.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.