President’s Budget Proposals Would Impact High-Income Taxpayers

As part of a deficit reduction plan, the proposals contain some tax increases. If the proposals are adopted, itemized deductions would be capped at the 28% tax bracket. Individuals with income over $200,000 (adjusted for inflation) and families with income over $250,000 (adjusted for inflation) would lose the benefit of itemized deductions, including charitable contributions, state taxes, and mortgage interest. This change is proposed for 2012, but it is not clear whether Congress will enact it.

However, the proposals would benefit some taxpayers. The president wants to make permanent the American Opportunity credit for college tuition, the expanded earned income credit, and the current child tax credit of $1,000 (which would otherwise drop to $500 after 2012).

Proposals also call for more money for the IRS ($13.28 billion in funding compared with its fiscal 2010 level of $12.15 billion). The increase is aimed at helping the IRS close the “tax gap,” which is the spread between what the government thinks it should collect and what it actually collects. The additional funding could be used for more audits and other enforcement measures.

Source: Budget FY 2012, released 2/14/11