Athens Review, Athens, Texas

Breaking News

Community News Network

November 29, 2012

Why vague plans to limit tax breaks may soon die

As negotiations over the fiscal cliff get down to details, they will become more arduous — something that financial markets seem to be ignoring. The superficial appeal of proposals to limit tax expenditures, for example, will fade as the details become clearer.

Whether the negotiators can navigate the obstacles and still get a deal done before Dec. 31 remains an open question. Automatic tax increases and spending cuts are scheduled to take effect at the beginning of January.

On their face, proposals to raise revenue by limiting tax breaks enjoy unusual bipartisan support — at least when they are described generically as "broadening the tax base and eliminating loopholes." Enacting legislation, though, requires much more than such platitudes, and therein lies the political difficulty.

Take the recent proposal to limit itemized deductions to a maximum of $50,000 a year. According to the Tax Policy Center, that would raise more than $700 billion over the coming decade, almost as much as the marginal-rate increases the Barack Obama administration is proposing for high-income taxpayers. Because median household income is also about $50,000, that level of allowable deductions strikes most people as extraordinarily generous, adding to its luster.

Perhaps more important, the proposal doesn't specify which deductions would be limited, but rather leaves that up to the individual. It thus reflects the new fundamental law of political economy: The vaguer the proposal, the better.

Let's take a closer look at the effects of such a limit, though. In 2009, according to data from the Internal Revenue Service, taxpayers who itemized their deductions and had incomes of more than $200,000 had average deductions of $50,000 or more. For those with $200,000 to $500,000 in income, average deductions amounted to more than $51,000; from $500,000 to $1 million in income, the average was more than $100,000. At higher incomes, the averages rose further.

That households with incomes of more than $200,000 would be disproportionately affected by the deduction limit is neither surprising nor necessarily troublesome. Here comes the problem. In 2009, those taxpayers deducted more than $300 billion, 90 percent of which came from just three categories: taxes paid (mostly state and local taxes), home-mortgage interest and charitable contributions.

Text Only
Community News Network
Biz Marquee
AP Video
Crashed Air Algerie Plane Found in Mali Israel Mulls Ceasefire Amid Gaza Offensive In Case of Fire, Oxygen Masks for Pets Mobile App Gives Tour of Battle of Atlanta Sites Anti-violence Advocate Killed, but Not Silenced. Dempsey: Putin May Light Fire and Lose Control Arizona Prison Chief: Execution Wasn't Botched Calif. Police Investigate Peacock Shooting Death Raw: Protesters, Soldiers Clash in West Bank Police: Doctor Who Shot Gunman 'Saved Lives' 'Modern Family' Star on Gay Athletes Coming Out MN Twins Debut Beer Vending Machine DA: Pa. Doctor Fired Back at Hospital Gunman Raw: Iowa Police Dash Cam Shows Wild Chase Obama Seeks Limits on US Company Mergers Abroad Large Family to Share NJ Lottery Winnings U.S. Flights to Israel Resume After Ban Lifted Official: Air Algerie Flight 'probably Crashed' TSA Administrator on Politics and Flight Bans Raw: National Guard Helps Battle WA Wildfires