Once upon a time, Democrats totally hated Mitt Romney's tax plan.
That's so last week. Now, many Senate Democrats are supporting one idea Romney floated that would enable Congress to raise taxes without technically raising tax rates: capping some itemized deductions.
The New York Times reports that a cap on deductions was floated as part of the grand bargain to avoid the "fiscal cliff." If Congressional Republicans and Democrats do not reach an agreement on cutting the deficit, a set of $1.2 trillion in tax hikes and spending cuts will go into effect on Jan. 1, potentially hurling the U.S. into recession.
"There's a renewed interest," Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, told the NYT, referring to capping deductions.
Romney proposed capping itemized deductions at $25,000 per household in October, in order to help pay for a 20 percent cut in marginal tax rates. A $25,000 cap on itemized deductions would fall mostly on the richest fifth of American households, according to the Tax Policy Center. Obama also has proposed capping itemized deductions for the wealthy, but his proposal stalled in Congress. Economists such as Harvard economics professor Martin Feldstein support capping deductions.
Some argue that tax deductions are actually a stealthy way for politicians to legislate government spending without labeling it that way. In other words, the government spends money to encourage people to buy houses and donate to charity, among other things, though these aren't technically government expenditures.
Capping deductions could be more politically feasible than totally eliminating popular tax breaks, such as the mortgage interest deduction. It also could be more feasible than raising marginal tax rates, which Congressional Republicans oppose.
Obama recently has proposed cutting $3 in spending for every $1 in new tax revenue raised to reduce the deficit by $4 trillion over 10 years, which would disproportionately hurt the poor, the middle class, and the elderly. Congressional Republicans, meanwhile, have been reluctant to let any taxes rise.
Earlier on HuffPost:
Residential Energy-Efficiency Credits
No tax breaks for being green in 2012. Homeowner investments in energy-efficient double-pane windows or high-efficiency refrigerators, <a href="http://www.energytaxincentives.org/">don't get any tax benefit, and that could add to tax bills</a>. More than 43.5 million Americans have filed and received this benefit, with an average reduction in tax liability of $765.84, according to H&R Block.
Mortgage Insurance Premiums
Bad news for homeowners: They cannot write off mortgage insurance premiums on 2012 tax returns. Congress can act to reauthorize these deductions retroactively to Jan. 1, 2012, and extend them through the end of 2013, but that would cost the government $1.3 billion over the next decade, the <a href="http://articles.latimes.com/2012/oct/07/business/la-fi-harney-20121007">Los Angeles Times reports</a>.
Taxpayers who have out-of-pocket adoption expenses or who adopted a child with special needs can only claim the adoption credit to the extent of their tax liability. While the portion of the credit not taken into account in 2012, up to $12,650 per child, is carried forward to future years, the benefit is no longer fully refundable, according to tax experts.
Alternative Minimum Tax
If the alternative minimum tax legislation is not retroactively patched for 2012, current law could result in an increased tax liability for up to 34 million Americans. According to a study by the Tax Institute at H&R Block, an average family making $85,000 with children in college could see their tax liability soar from a $1,056 refund to owing $1,400.
American Opportunity Tax Credit
Tuition bills will be higher starting on Jan. 1 because families will lose the $2,500 American Opportunity Tax Credit, which ends in 2012 unless Congress takes action. More than 2.4 million Americans claimed this deduction in 2009, resulting in a combined decrease in taxable income of $5.4 billion, according to tax experts.
Payroll Tax Credit
Paychecks will be smaller starting Jan. 1, 2013. An American making $50,000, for example, will lose $80 in monthly pay after the credit ends. The temporary credit also has lowered the amount workers contributed to Social Security by 2 percent.
Educator Expense Deduction
Teachers lose their $250 maximum deduction on expenses related to buying school supplies. This credit expired at the end of 2011, and teachers won't be able to claim this benefit on their 2012 taxes unless Congress takes action. In 2009, more than 3.8 million teachers claimed this benefit for a combined deduction of $9.7 billion, according to H&R Block.
Sales Tax As An Itemized Deduction
Taxpayers will no longer have the option of claiming an itemized deduction for state sales tax in lieu of state income tax. This expiration will have a greater impact on taxpayers who reside in a state with sales tax, but no income tax, including Alaska, Florida, Texas, Nevada, Washington, South Dakota, and Wyoming.
IRA Retirement Funds
Taxpayers over age 70½ no longer have the option of directing their income from an IRA distribution to a charitable organization. Starting this year, older taxpayers must include the distribution in income and claim a charitable deduction, resulting in a potentially higher tax bracket and a need to itemize instead of claiming the standard deduction, according to H&R Block.
As if losing all those tax credits was not bad enough, the earliest date to file a 2012 tax return electronically has moved back to Jan. 22, 2013. As the IRS has indicated that refunds could take as long as 21 days to process this year, a refund in January to cover Christmas credit card payments, winter heating bills, or rent is unlikely.