Tax deductions in peril? Americans prefer mortgage break to item on charity.
Tax revenues are seen as one source to help cut the deficit. In a new Monitor/TIPP poll, Americans were asked which tax deduction they would be most ready to part with. The charitable deduction led the list.
Americans would be more willing to give up the tax deduction for charitable giving than some other popular tax breaks, including the one for the interest on their home mortgages.
That poll result, which emerged in a new Christian Science Monitor/TIPP survey of US adults, arrives as President Obama and congressional lawmakers are bargaining over ways to reduce future federal deficits, while also avoiding a "fiscal cliff" of scheduled tax hikes that could send the economy into recession.
To reduce federal deficits, the options boil down to various ways to cut spending or raise taxes. And on the tax front, some elected officials in both parties argue that limiting deductions would be a way to raise new revenue without harming the economy as much as a boost in tax rates.
The poll, conducted last week, asked "If you were to eliminate one popular deduction in the tax code, please tell me which of the following five will be your choice?" The survey then offered five options, including deductions for charitable giving, mortgage interest, state taxes paid, employer-sponsored health insurance, and retirement savings.
Some 25 percent of poll respondents chose the one for charitable giving, which made it the leading candidate for cutting. It was followed by the deduction for state taxes (chosen by 22 percent of respondents), the mortgage interest deduction (19 percent), and the one for employer-sponsored health insurance (14 percent).
The deduction for contributions to retirement savings, such as in 401(k) plans, was the most popular of those included in the survey. Only 8 percent of respondents said retirement saving should lose its tax-sheltered status, if one of the deductions had to be eliminated.
In practice, it may be more likely that Congress will limit the size of deductions rather than eliminate any of these popular ones altogether. And the effects of such a change would probably fall heaviest on higher-income Americans, who list or "itemize" more deductions on their income tax forms.
But millions of Americans could be affected, if Congress agrees to deduction-limiting moves.
Many charitable organizations, for their part, worry that Americans' giving would decrease if the tax deduction for charity were reduced or eliminated.
Interestingly, the Monitor/TIPP poll found that the charitable deduction was the most selected, in the hypothetical "what to cut" question, even by the higher-income Americans who are most likely to make use of it. It was the top choice for 29 percent of the respondents with more than $75,000 in income.