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Tax deduction reductions?

By Kay Bell · Bankrate.com
Thursday, September 15, 2011
Posted: 7 pm ET

If you make more than $200,000 (or $250,000 and you and your spouse file a joint return) and you itemize deductions, you might want to pay attention to the jobs bill President Barack Obama is trying to get through Congress.

To pay for his proposal, the president is suggesting limits on the items claimed on Schedule A.

This isn't a new idea.

Obama has suggested such limits in his budget proposals. So have various special tax reform and budget cutting panels.

And the reduced tax breaks used to be law as recently as the 2009 tax year. In fact, the deduction limits are scheduled to return in 2013 when the current tax laws, extended at the end of 2010, expire.

It seems like a good idea from a policy and political standpoint. Most people claim the standard deduction, so they won't be affected.

And the income limits mean that only wealthier taxpayers -- those in the current 33 percent or 35 percent  income tax rate brackets -- will have to deal with reduced deduction amounts.

But there are a lot of groups already rallying against the proposal.

The housing and real estate sectors are adamantly opposed to any limits on their cherished mortgage interest deduction.

And groups representing philanthropic organizations say such a move could seriously cut into the gifts from wealthy donors at a time when the charity world already is hurting because of the economy.

In fact, the idea of doing away with even a portion of tax breaks has united some usually unlikely groups.

Chris Dubay of the conservative Heritage Foundation says that even nonprofits aligned with the Democratic Party object to the plan.

The reason for the united front? The fear that the deduction limits are only the tip of the tax break iceberg.

"No one expects this plan to pass as a free standing bill," David Thompson, vice president of public policy at the National Council of Nonprofits, told The Daily Caller. But, he added, "a large number of folks are growing concerned" about fiscal pressures that may encourage future changes.

Thompson brings up a good point: Provisions of the Obama jobs bill is likely to be cherry-picked and added to other tax and appropriations measures. Which ones will survive depends on which public outcries and lobbying arm twisting are the most effective.

Would the itemized tax deduction cuts affect you? What deductions do you think should be reduced or eliminated?

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