Panel urges limits on tax breaks

WASHINGTON – Two of the nation’s most popular tax breaks – for home mortgage interest and employer-paid health insurance – should be narrowed, a federal panel appointed by President Bush suggested Tuesday.

The panel’s recommendations will be made in a report scheduled to go to the Treasury Department by Nov. 1. In addition, the panel will recommend giving all Americans who pay taxes the opportunity to deduct charitable donations, even if they don’t itemize their tax returns.

The most far-reaching proposal previously endorsed by the panel is the elimination of the alternative minimum tax, which would affect 20 million taxpayers next year unless changes are made.

Because Bush launched the bipartisan panel, its proposals will carry great weight with the White House, Treasury Department and Republican-controlled Congress. But changing tax law is traditionally one of the most difficult things Congress does, and the short time left before Congress adjourns this year makes it unlikely tax overhaul will be taken up before next year. The real estate and health insurance lobbies have consistently fought proposals to trim tax breaks for mortgages and health insurance.

The nine-member tax panel agreed Tuesday on the outlines of housing, health care and charitable-giving tax breaks. Panel members said the tax breaks would be lost mostly by employees with generous health insurance plans and homeowners with expensive mortgages. But key details remain to be worked out.

The key recommendations made by the panel Tuesday include:

•Restricting the tax deduction for mortgage interest. In its current form, the mortgage interest deduction will cost the Treasury $76 billion in 2006. The panel’s recommendation likely would lead to a tax only above a certain mortgage amount – possibly about $300,000 – with regional differences to reflect for more and less expensive housing markets. Homeowners can now deduct their interest on mortgages up to $1 million.

•Capping the exemption for employer-provided health insurance premiums. In its current form, that tax break will cost the Treasury $141 billion in 2006. The panel said those most heavily affected would be employees of large corporations with generous health plans.

•Letting taxpayers who do not itemize their tax returns deduct charitable donations. Small donations, perhaps up to 1 percent of wages, would not be included. The expanded deduction would increase add to the deduction’s current $32.5 billion annual cost.