Leading up to last year’s fiscal cliff deadline there was a debate about limiting tax deductions and exemptions. The debate was part of a larger discussion about making substantial revisions to the federal income tax code. Was anything along these lines included in the final fiscal cliff legislation? N.C. State University economist Mike Walden answers.
“Well, of course, and on the tax side, what got all the attention in the fiscal cliff legislation was higher tax rates on those folks at the very upper end of the income level making either $400,000 or $450,000 a year or more. But actually in the fine print what we see is a second kind of tax increase in that the fiscal cliff legislation included new limitations on the amount of deductions and exemptions that people could take. And these kick in actually at lower levels – for a single person making $250 grand or couples making more than $300,000.
“So the answer to your question is yes. The limits on deductions and exemptions, which is part of this bigger debate about revising the tax code, has already taken place. Now we actually had similar limitations in place in the 1990s, but they were eliminated in the 2000s. But now they are back. So people who are, for example charities, or the home building and home sales industries, they need to worry about this because they in a sense rely on deductions as a motivation of to make charitable contributions or buy their homes. We’re already seeing some of those limitations. So, I think this is perhaps the start of a bigger debate down the road.”