Proposed Cap on Mortgage Interest Draws Fire

Washington, DC, March 5, 2009--President Barack Obama is meeting strong Democratic Party opposition to his proposal to reduce mortgage and charitable tax deductions.

Obama's new budget proposed a cap on itemized deductions for mortgage interest and charitable donations to help pay for his health-care overhaul. The plan would cost wealthier taxpayers about $318 billion in new taxes over 10 years, according to government estimates.

However, Treasury Secretary Timothy Geithner appeared to suggest at one point Wednesday that the administration was willing to consider dropping or modifying the proposal.

The Democratic resistance could foreshadow future hurdles for his proposed tax increases.

Republicans have already taken aim at rate increases planned for higher-income earners, as well as the administration's plans to raise hundreds of billions of dollars through climate-change legislation.

Sen. Max Baucus (D., Mont.), the Senate's top tax writer as chairman of the Finance Committee, told Geithner he was concerned about paying for expanded health coverage with a deductions curb that "has nothing to do with health care."

Geithner said Wednesday. "We are willing to listen to all ideas that meet these broad principles."

Some lawmakers questioned whether it was smart to reduce mortgage-interest deductions in the midst of a housing-market crisis.

Geithner also faced questions about how Obama's plan to let the top two tax rates increase to 39.6% and 36% in 2011 would impact small businesses.