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Obama defends his plan to limit tax deductions

His budget reduces the upper-income deductions for mortgage interest and charitable giving. 'It would equalize' the tax benefit, Obama tells reporters. The plan faces strong opposition.

March 25, 2009|Mike Dorning

WASHINGTON — In the face of opposition from Congress, President Obama on Tuesday vigorously defended his proposal to scale back two popular tax breaks by limiting the ability of upper-income taxpayers to deduct home mortgage interest and gifts to charities.

Obama's proposed budget pays for a major share of his proposed healthcare overhaul by capping the value of itemized deductions to a rate of 28%, in effect making the deductions worth less than under current law to couples who make more than $250,000 per year.

"What it would do is it would equalize," Obama said in response to a question at his news conference.

Using the example of a bus driver who pays income tax at a rate of 28% and his own situation as a high-income earner taxed at a higher rate, Obama argued that current law allows him a greater tax benefit than the bus driver would receive for a charitable cash contribution of equal value.

"He gets to write off 28%. I get to write off 39%. I don't think that's fair," Obama said.

Charities and home builders have lobbied against the proposal, fearing it would cut into giving and home purchases by the wealthy. The plan has received a chilly reception on Capitol Hill.

But Obama argued that the cap on tax deductions was "a realistic way for us to raise some revenue from people who benefited enormously over the past several years."

And, he argued, "there's very little evidence that this has a significant impact on charitable giving. I'll tell you what has a significant impact on charitable giving is a financial crisis and an economy that's contracting." His administration estimates that the proposal would affect 1% of taxpayers and raise almost $320 billion over the next 10 years.

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mdorning@tribune.com

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