By Suzanne Perry

President Obama plans to stick to his proposal to cap the federal tax breaks wealthy people can get for itemized deductions, including charitable donations, when he submits the final piece of his budget plans on Monday, Peter Orszag, the White House budget director, said today.

Mr. Orszag, writing on his blog, restated the administration’s defense of the controversial plan, which seeks to raise money for a reserve fund that will help pay to overhaul the health-care system.

The change, which has drawn fire for its potential to dampen charitable giving, would bring more fairness to the tax system since wealthy people now get bigger tax breaks for their deductions than lower-income people, Mr. Orszag said.

Furthermore, he added, the best way to boost donations was to “jumpstart the economy and raise incomes,” which the administration aims to do with the economic-stimulus plan that was enacted in February.

“Limiting itemized deductions for high-income Americans would help restore balance to the tax code, and any effect on charitable giving is likely to be swamped by other Administration policies.” he said.

President Obama has proposed limiting the tax break for itemized deductions to 28 cents for every dollar spent for couples earning more than $250,000 (individuals $200,000), starting in 2011. Under the current system, taxpayers in the highest tax brackets can get up to 35 cents off.

The plan has been criticized by many nonprofit leaders and members of Congress, especially Republicans, who say it would harm charities at a time when they are under severe strain because of the economic downturn. Some charity leaders support it, however, because they give high priority to bringing down health-care costs.

Sen. Max Baucus, the Montana Democrat who chairs the Senate Finance Committee and is a key player in the Congressional debate, said last month the proposal is still on the table, along with other revenue-producing ideas. His committee is holding a roundtable discussion on Tuesday on “Financing Comprehensive Health Care Reform.”

The 2010 budget resolution approved in April by both houses of Congress called for a “deficit-neutral” health-care reserve fund, but did not specify how to pay for it.

The itemized-deduction limits would raise $267-billion of the $635-billion fund, Mr. Orzag said.

Mr. Obama on Thursday issued his detailed budget proposals for spending by program in the 2010 fiscal year. Additional documents scheduled for release on Monday will include historical data about the country’s fiscal policies and project the impact of proposed spending and tax policies through 2019.