On a conventional basis, PWBM estimates this policy would raise about $2.1 trillion over the period 2021 to 2030. 4 Charitable contributions, which currently receive an average tax subsidy of about 16 cents per dollar of donation, would no longer receive preferential tax treatment, thereby lowering charitable giving, as discussed in our previous analysis.
For example, debt-financed homeownership would no longer receive an implicit subsidy, and recent research suggests removing this tax expenditure would slightly reduce home prices. This policy would remove certain distortions from the tax code. Above-the-line deductions would also remain unchanged. Notably, under this policy option, taxpayers would still be able to receive employer-based medical benefits on a pre-tax basis, as this expense does not appear in Schedule A and is not included in gross income. All taxpayers would be required to take the standard deduction when computing taxable income. We estimate a policy option that would eliminate all Schedule-A itemized deductions. Together, these expirations will lead more filers to itemize in 2026 than in previous years. The standard deduction will also return to its 2017 level, adjusted for inflation, in 2026. The limitations on itemized deductions enacted under the 2017 tax law are scheduled to expire in 2026. Some itemized deductions, such as medical and dental expenses, are allowed only if the expenditure exceeds a certain percentage of AGI. Mostly notably, taxpayers cannot deduct more than $10,000 in state and local taxes and cannot deduct mortgage interest attributable to the portion of loans that exceeds $750,000. If a filer chooses to itemize, certain limitations apply. 3įor tax year 2019, the standard deduction is $12,200 for single taxpayers and $24,400 for married taxpayers filing jointly. High-income taxpayers are more likely to itemize, with about 93% of returns with AGI of at least $500,000 electing to itemize their deductions in 2017. Subject to various thresholds, common itemized deductions include state and local taxes, charitable contributions, mortgage interest and large out-of-pocket medical expenses. The majority of taxpayers 2 are then given the choice to either deduct a flat amount, known as the standard deduction, or deduct the sum of certain expenses, known as itemized deductions, from their AGI to arrive at their taxable income. When taxpayers prepare their individual income tax returns, their gross income is first adjusted through above-the-line deductions 1 to arrive at an individual’s Adjusted Gross Income (AGI). Families in the top 10 percent of the income distribution would bear 75 percent of the overall burden of this tax increase. We project that it would raise about $2.1 trillion of additional revenue on a conventional basis over the 10-year budget window and increase GDP by 2.3 percent by 2050. Summary: We estimate the budgetary, economic and distributional effects of eliminating all Schedule-A itemized deductions starting on January 1st, 2021.
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