Our View: Deduction in danger
The current congressional leadership prides itself on not increasing taxes, but if it doesn’t act soon, taxes will rise for millions of Americans who deduct sales taxes on their federal forms.
The sales-tax deduction was reinstated in 2004 – after an 18-year absence – but for only two years. Like other taxes that have been cut this decade, this one carried an expiration date.
Many of the other cuts have been extended. Some were extended far in advance of their expiration dates. But not the sales tax deduction, which lapsed last December.
Congress convened a lame-duck session on Monday because it failed to pass critical appropriations bills before taking a break so members could campaign for the Nov. 7 election. Though the balance of power has shifted in Washington, D.C., that shouldn’t stop leadership from making the sales tax deduction a permanent fixture.
The issue is bipartisan, with Republicans and Democrats from the eight affected states working to gain an extension. So there’s no need to wait for Democrats to take power in January. By then, the Internal Revenue Service will have printed its tax booklets and accountants and households will be busy preparing tax returns.
Six months ago the extension of the deduction looked to be a mere formality, but then it was crowded out by tax cuts for capital gains and dividend income that weren’t set to expire until 2008. Never mind that the sales tax deduction had already expired.
Next, it was packaged with a repeal of the estate tax and used as bait to coax a few more votes from senators who lived in affected states – Washington’s Patty Murray and Maria Cantwell, for example.
When that failed, the deduction was tossed in with a bill that would increase the minimum wage, repeal the estate tax and change the way workers who earn tips are taxed. That bill didn’t pass either.
What the deduction has never gotten is an honest hearing on its merits.
Residents of the 42 states with an income tax get to deduct local taxes on their federal forms. Residents of the other eight states do not. That’s simply unfair.
The GOP’s lame-duck leaders need to release this hostage. It ought to be obvious that their demands for a permanent repeal of the estate tax will not be met.
Instead, they’re faced with the prospect of sullying their tax-cutting legacy by raising taxes on the nearly 9 million Americans who have benefited from the sales-tax deduction. An estimated 970,000 Washingtonians benefit from the deduction, with an average savings of about $500.
Democrats can help matters by compromising on the estate tax, which carries a top rate of 55 percent. That’s too high.
A deal like that would provide a victory for both sides and end this unproductive game of legislative chicken.