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· December 12, 2012

Republican fiscal cliff proposal to cap deductions protects the rich by harming middle-class Americans

On Friday, our sister organization, Innovation Ohio Education Fund, released a report that, among other things, compared and contrasted the fiscal cliff proposals of President Obama and Congressional Republicans. A portion of the report focused on the Republican proposal to cap deductions and close loopholes to generate $800 billion in new revenue over the next two years. The report concluded that the plan would not raise the estimated $800 billion and could lead to the elimination of other deductions that millions of Ohio families rely upon. The report focused on Speaker Boehner’s proposal which included $800 billion in new revenue. While the proposal from Speaker Boehner was strikingly absent of details, some key Republicans have publicly stated capping deductions at $25,000 a year for those making over $250,000 a year would help raise $800 billion over ten years. While on paper this may work, in reality it is much less likely to do so. For starters, policy makers agree that a $25,000 a year cap must have a phase-in to protect taxpayers from their own fiscal cliff which would reduce revenue to $650 billion. In practice, taxpayers who make less than $250,000 a year would be protected, but any filer that makes $251,000 or more would be liable for thousands of dollars of taxes because they have reached the cap. Second, without exempting the deduction on charitable giving, the cap could devastate charitable giving. It is estimated that a cap on charitable giving would cause wealthy individuals to reduce their giving by as much as $10 billion per year – an amount that could devastate charitable services to the poor. An exemption for charitable giving would further reduce the pool of new revenue to $450 billion. To make up the difference in lost revenue other deductions could be reduced or eliminated that millions of middle-class Ohioans rely upon. Considering that Speaker Boehner’s proposal also included lowering rates for wealthy individuals, options to limit deductions for middle-class and poor families will most likely be on the table if Republicans are serious about raising $800 billion. The report identified tax deductions, credits, and preferences most widely used by Ohio families that could be on the chopping block.
  • 6 million. The number of families in Ohio that receive their health insurance from their employer, which is currently tax exempt.
  • 1.3 million. The number of families in Ohio that file for the mortgage interest deduction. In 2010, the average middle class family claimed $7,105 in mortgage interest deductions.1.6 million.
  • The number of families in Ohio that deduct state and local taxes from their federal income taxes. In 2010, the average middle-class family deducted $1,237 in state and local taxes from their federal income taxes.
  • 887,000. The number of Ohio families that benefit from the child tax credit. In 2010, the average child tax credit recipient in Ohio received $1,277.
  • 158,000. The number of Ohio families that claim the child care tax credit. In 2010, the average recipient of the child care tax credit reduced their taxes by $485.
  • 1.6 million. The number of Ohio families that qualify for the earned income tax credit and the refundable portion of the child tax credit. In 2010, families that received the earned income tax credit or the refundable portion of the earned income tax credit received a tax benefit of $2,147.
  • 349,000. The number of Ohioans that use the American Opportunity Tax Credit to help pay for college. The average benefit that these students received was $2,100.
The Congressional Republican will not raise the revenue it says it will unless it includes eliminating or reducing deductions on middle-class Americans and, further, instead of asking the wealthiest to pay a little more in taxes it reduces their rates. In essence, their plan reduces taxes for the wealthiest by asking low and middle income people to pay more in taxes which is unfair and the president is correct in not accepting it.

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