Obama may limit tax breaks for rich

The proposals went nowhere -- in part because charities claimed that their funding, already hurt by the recession, would suffer even more. And the lobbyist-heavy real estate industry spoke out against it as well.

But this time, the proposal might be better received given the increased political and public awareness of U.S. debt and an improved economic climate, said Sean West, a U.S. policy analyst at the Eurasia Group.

"He's always called for it, but now there's a new narrative," West said.

In particular, West said, the president's bipartisan debt commission raised awareness that the country gives up more than $1 trillion a year in revenue because of hundreds of tax breaks, many of which benefit some investments and taxpayers more than others.

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Take the mortgage interest deduction: It is seen as a big spur to housing sales, which in turn can bolster big swaths of the economy. But some argue the generous deduction contributed to an unstable rise in home prices, and tax statistics show that the wealthiest households disproportionately benefit.

For example, 32% of the revenue lost in 2008 because of the deduction went to households with incomes over $200,000, even though they accounted for only 11% of the returns claiming the deduction.

In the past, Obama has proposed reducing itemized deductions for high-income taxpayers - by limiting their value to 28% of every dollar that is deductible.

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Currently, those in the top two tax brackets (33% and 35%) have taxable income of at least $172,000 if they're single or $209,000 if they're married filing jointly. These filers can save either 33% or 35% of every itemized deductible dollar. But under Obama's proposal they would only be able to save 28%.

The Congressional Budget Office last year estimated that such a proposal could raise nearly $300 billion over 10 years.

If the same proposal is included in the president's 2012 budget request, that will make it easier to show that his blueprint for the next decade is fiscally responsible because the additional revenue could be used to reduce the deficit or pay for new investments.

--An earlier version of this story incorrectly stated that those in the top two tax brackets have taxable income of at least $374,000 if they're married filing jointly. Their correct taxable income is $209,000.  

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