By Ben Gose
President Obama proposed on Monday to sharply limit the value of charitable tax breaks taken by wealthy people.
In his budget proposal for the fiscal 2012 year, he said he wants to limit itemized deductions to 28 percent for taxpayers in the highest brackets. This proposal is similar to an idea Mr. Obama put forward in last year's budget. The new fiscal year begins October 1.
The proposal would eventually reduce the value of itemized deductions for those in the top tax bracket by 30 percent. Without futher action to extend the Bush-era tax cuts for the wealthy, the top tax bracket, currently at 35 percent, would rise to 39.6 percent in 2013.
Mr. Obama also said he would push to end tax cuts for Americans making $250,000 or more when they expire in two years and seek to rein in exemptions in the estate tax, which allows couples to pass estates as large as $10-million to their heirs tax-free.
The savings from the reduction in itemized deductions for high-income taxpayers would be used to pay for a fix to the alternative minimum tax.
That tax was originally designed to prevent wealthy Americans from escaping taxation by taking advantage of loopholes in the tax code, but in recent years it has affected a growing number of middle-class Americans.
The cost to fix that tax for three years is more than $300-billion, roughly the same amount that would be saved.
“For too long we have tolerated a tax system that’s a complex, inefficient, and loophole-riddled mess,” President Obama wrote.
Mr. Obama may have greater ammunition in his bid to curtail the deduction this year, as other groups are also calling for scaling back tax deductions for charitable gifts.
In December, a majority of members of his bipartisan deficit commission proposed converting the deduction to a 12-percent tax credit and limiting it to people who had donated a certain percentage of their income.
On the estate tax, President Obama signed legislation just two months ago that set the tax rate at 35 percent and allows couples to pass estates as large as $10-million to their heirs tax-free. He brokered the deal with Republican lawmakers, many of whom deride the tax as a “death tax.”
The estate tax, which lapsed in 2010, had been scheduled to rise to 55 percent for individuals worth more than $1-million.
In addition to the larger exemption for the estate tax, the December 2010 legislation also maintained tax breaks for wealthy Americans that were established in 2001 and 2003.
“While I had to accept these measures for two more years as a part of a compromise that prevented a large tax increase on middle-class families and secured crucial job-creating support for our economy, these policies were unfair and unaffordable when enacted and remain so today,” Mr. Obama said, in releasing his budget on Monday. “I will push for their expiration in 2012.”
Independent Sector, a coalition of foundations and charities, had argued against the greater exemptions and lower rates for the estate tax in the December 2010 legislation, suggesting that wealthy people would give less to charity when confronted with lower tax rates.
Mr. Obama said Monday he wants to return to 2009 levels, when the first $3.5-million was exempt from tax, and the tax rate was set at 45 percent.