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Orszag on the Limits of Capping Itemized Deductions

Appearing on a conference call we held for journalists today, Peter Orszag — former director of the Office of Management and Budget and of the Congressional Budget Office, currently Vice Chairman of Global Banking at Citigroup — discussed proposals to cap itemized deductions for upper-income households as a way to reduce deficits while maintaining or lowering current tax rates.  He said in part:

One of the reasons why some of these proposals, like a $50,000 cap, remain, in my opinion, artificially attractive at this point is their vagueness.  No one knows exactly what deductions get scaled back under that kind of approach, as opposed to attacking — or changing — the provisions directly.  But that attractiveness is misleading.

If you look at the $50,000 itemized deduction cap as just one example, [among] households above $200,000 in income who have average deductions of $50,000 or more . . . 90 percent of the dollar value of the deductions claimed by those households in 2009 came from three sources:  mortgage interest deduction, taxes paid (which, in turn, is mostly state and local taxes), and finally, charitable contributions.  So that’s really where the bulk of the hit will come.

Click on the button below for the audio of the presentation portion of the call. Click here for the CBPP’s report on the issue.  Download as mp3