Obama plans to reduce tax benefits for the rich
The Obama Administration is planning to reduce tax deductions on mortgage interest for the rich and high income taxpayers. By doing so, he’ll be using the reduction in benefits or increase in income taxes in order to compensate for his ambitious programs, which are aimed to revive the staggering economy.
As per Obama’s plan, the tax deductions available to the rich will be capped at 28%. That is, they can deduct only 28% of the total interest they pay every year on their mortgages. So, people in the higher marginal tax brackets of 33% and 35% will get a comparatively smaller benefit from their deductions on mortgage interest, state taxes and charitable contributions etc.
What’s the purpose of Obama’s plan?
With the tax benefit reduction, Obama aims to raise $318 billion over a period of 10 years. It is in accordance with the President’s campaign to increase taxes for families earning more than $250,000.
The higher income people, especially those earning more than $357,700 a year get back 35 cents on their taxes for each dollar they spend on their mortgage interest. If Obama’s new plan is implemented, it will reduce the tax benefits earned to 20 cents on every dollar. This is actually a reduction by 20%.
What can be the impact of reducing the tax benefits?
The tax benefit reduction plan is likely to have a deep impact on the housing market. A drop down in tax deduction benefits means an increase in homeownership costs. So, this reduction may bring down home prices because people may refrain from homeownership due to rising costs.
Obama’s plan won’t be implemented before the next 2 years. However, in the midst of an ongoing crisis, the Administration may not have come up with a plan that’s likely to make homebuilders and realtors worried about what the near future holds for them.
Technorati Tags: reduce tax deduction, obama tax deduction plan., homeownership tax benefit