Obama Budget Plan Would Lower Mortgage Tax Deduction for Wealthy

[Mar 6, 2009.]

 

President Barack Obama’s budget proposal has a measure that would limit mortgage tax deductions for people with the highest incomes. Under the plan, single filers making over $200,000 and joint filers making over $250,000 would be affected. Obama proposed the measure as a way to help pay for health reform.

About 1.2% of America’s taxpayers would be affected. Under current tax laws, a $1,000 deduction is worth up to $350 for the wealthiest taxpayers, because they can avoid tax rates of up to 35% on that income, according to the Wall Street Journal. The proposed cap would make the $1,000 deduction worth only $280 at most.

Many people who own homes rely on deducting mortgage interest to reduce their tax bill. In fact, one argument financial experts often make for not paying off a home mortgage early is the tax deduction benefit.

Obama’s budget plan would also cap tax deductions for charitable donations by wealthy individuals. Not surprisingly, there is concern that limiting these deductions could have a negative impact on overall charitable giving.

“I'd like to think that people give out of the goodness of their heart, but that tax deduction helps to loosen up the heartstrings," Nevada Democratic Rep. Shelley Berkley said during a House Ways and Means Committee hearing this week.

The proposal to cap these deductions has met with some resistance, including from Democrats. Some opponents say they are against the idea of paying for a health care plan by limiting deductions in areas that have nothing to do with health care. Others said they weren’t sure it was a good idea to reduce the mortgage interest tax deduction in the middle of a housing crisis.

The National Association of Realtors (NAR) is among those who are opposed to limiting the mortgage interest deduction. The NAR says capping the deduction won’t just affect the wealthiest Americans, but would impact home prices and values across the board.

According to the NAR’s Web site, “The middle class would see their home values reduced even further by such action, and NAR cautioned the Obama administration that any further pressure on home prices will hamper the economic recovery, raise foreclosures and hurt banks’ abilities to lend.”

With all of the opposition to the plan it’s likely the White House will seek other ways to help pay for health reform. Treasury Secretary Timothy Geithner said earlier this week that “we recognize there are other ways to do this. We are willing to listen to all ideas that meet these broad principles.”

 

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.