Revenues
Eliminate or Limit Itemized Deductions
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
Billions of dollars | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– | |
Decrease (-) in the deficit | |||||||||||||
Eliminate itemized deductions | -66.4 | -240.7 | -340.6 | -350.3 | -357.9 | -375.7 | -396.9 | -414.4 | -431.8 | -448.7 | -1,355.9 | -3,423.5 | |
Eliminate state and local tax deductions | -8.8 | -89.2 | -166.9 | -168.4 | -176.5 | -184.7 | -193.3 | -202.1 | -211.2 | -220.0 | -609.8 | -1,621.0 | |
Limit the tax benefit of itemized deductions to 15 percent of their total value | -41.5 | -134.9 | -184.1 | -193.8 | -201.8 | -210.8 | -220.3 | -232.0 | -241.1 | -249.5 | -756.1 | -1,909.8 | |
Limit the tax benefit of itemized deductions to 4 percent of AGI | -20.4 | -54.0 | -68.3 | -72.2 | -75.7 | -79.8 | -84.3 | -89.1 | -94.0 | -98.5 | -290.6 | -736.4 | |
Data source: Staff of the Joint Committee on Taxation.
This option would take effect in January 2025.
AGI = adjusted gross income.
When preparing their income tax returns, taxpayers may choose to take the standard deduction—a flat dollar amount—or to itemize and deduct certain expenses, such as state and local taxes, mortgage interest, charitable contributions, and some medical expenses. Deductions reduce the amount of income subject to taxation (taxable income), and taxpayers benefit from itemizing when the value of their deductions exceeds the amount of the standard deduction. The tax code imposes limits on the amount of itemized deductions that taxpayers can claim. For example, taxpayers currently cannot deduct more than $10,000 in state and local taxes.
Many of the tax rules relating to itemized deductions were affected by the 2017 tax act (Public Law 115-97) and are scheduled to expire at the end of 2025. Beginning in 2026, deductions for state and local taxes will not be limited, and the overall value of certain itemized deductions will be reduced for taxpayers whose adjusted gross income, or AGI, exceeds a specified threshold. (AGI consists of income from all sources not specifically excluded by the tax code, minus certain deductions.) That threshold, often called the Pease limitation, can reduce the value of some itemized deductions by up to 80 percent, depending on the taxpayer's income.
This option consists of four alternatives. The first alternative would eliminate all itemized deductions, and the second would eliminate the itemized deduction for state and local taxes. The third alternative would limit the tax benefit of itemized deductions to 15 percent of their total value and permanently remove the Pease limitation. The fourth alternative would limit the tax benefit of itemized deductions to 4 percent of a taxpayer's AGI and permanently remove the Pease limitation.