Americans who pay state income taxes are able to deduct those from their federal taxes, but until just a few years ago, Americans in states funded mainly through sales taxes didn’t get the same break.
But through the leadership of Sen. Kay Bailey Hutchison, among others, the deduction was finally granted in 2004 — as a temporary measure. It was extended in 2006, but it expired at the end of 2011. It has not yet been renewed for the 2012 tax year.
Sen. Hutchison and some colleagues have written to Obama about the matter.
“Providing the deduction for state and local sales taxes is a matter of fairness for millions of taxpayers in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming,” the letter explains. “Residents of states that levy income taxes have long been able to deduct these state income taxes through a permanent deduction. However, taxpayers in our states, which use sales taxes in lieu of income taxes to finance government services, have been treated inequitably since 1986, when the permanent deduction for state and local sales taxes was eliminated.”
It’s not just a matter of fairness; it’s an economic necessity, the senators say.
How much? An estimated $500 per person per year.
Sen. Hutchison has some important allies in this fight; Sen. Patty Murray of Washington, a member of the Democratic leadership team, has long supported this deduction.
But Sen. Murray has made some worrisome statements lately, about allowing Washington to go over that cliff, in order to increase Democratic leverage.
“Murray reasons that might make it easier to get Republicans to agree to reinstate the cuts only for the middle class and let the nation’s wealthiest 2 percent pay more toward the reducing the debt, as Democrats desire,” the Washington Post reported. “Suddenly, Congress would be voting to lower taxes for the vast majority of Americans, rather than agreeing to raise them for a few.”
That would be disastrous, and would leave Texans and others on the hook for taxes that residents of other states don’t have to pay.
Sen. Hutchison might find yet another powerful ally. Senate Majority Leader Harry Reid’s home state of Nevada would also be hit, and he’s under increasing pressure there to make the deduction part of any tax deal.
That’s important. It’s also important to make the deduction permanent — so we don’t have to fight this battle all over again.