The Obama administration proposes to raise $291 billion over the next decade by reducing the amount by which wealthy families can cut their tax bills by claiming itemized deductions for mortgage interest payments and other write-offs.
The Obama administration tried and failed to implement a similar change in last year’s budget, after running into opposition from interest groups ranging from mortgage lenders to charities that benefit from the taxpayers’ ability to claim such itemized deductions.
Currently, individuals with incomes above $200,000 and families with incomes above $250,000 can lower their taxes by an amount equal to as much as 39.6 percent of their itemized deductions. The Obama administration wants to lower the cap to 28 percent — the level in place at the end of the Reagan administration.
Because families in lower tax brackets don’t benefit as much from itemized deductions, the system in place now provides a disproportionate benefit to the wealthy, the administration said in its proposed budget.
"Currently, if a middle-class family donates a dollar to its favorite charity or spends a dollar on mortgage interest, it gets a 15-cent tax deduction, but a millionaire who does the same enjoys a deduction that is more than twice as generous," the Obama administration said.
The Mortgage Bankers Association issued a statement claiming the proposed tax increase would have a negative impact on housing markets by increasing the cost of mortgages for many potential homeowners, especially in high-cost states like California and New York.
The MBA also expressed disappointment that the budget "did not offer any indications of the administration’s plans for the future of Fannie Mae and Freddie Mac."
The MBA "strongly supports" a proposed $18 million increase in the Federal Housing Administration’s budget to implement improved risk management systems, $20 million earmarked for the Department of Housing and Urban Development to combat predatory lending and mortgage fraud.
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