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Washington again a pawn in tax game

Post by Cheryl Tucker on Feb. 15, 2010 at 11:56 am |
February 15, 2010 11:56 am

This editorial will appear in Tuesday’s print edition.

The annual tussle over ensuring tax equity for Washington and six other states might make great sport if it weren’t so predictable.

The sales tax deduction is a favorite bargaining chip in Congress, and consequently, it’s in perpetual peril.

The deduction has been added to – and dropped from – controversial legislation dealing with everything from raising the minimum wage to offering tax incentives for renewable energy.
This year’s vehicle of choice seemed to be the jobs bill. The House version passed in December included the deduction, as well as a number of other tax breaks.

But its lure apparently proved too powerful in the Senate. The sales tax deduction was at the last minute left out of the $85 billion jobs bill released by the Senate Finance Committee Thursday, according to the Seattle Times.

The reason: A Senate staffer said senators needed to hold back something to give them leverage for negotiations with the House.

Neither was the sales tax deduction anywhere to be found in Senate Majority Leader Harry Reid’s $15 billion alternative proposal, announced just a few hours after finance committee’s bipartisan deal.

The Nevada Democrat has promised a follow-up bill to deal with so-called tax extenders – a variety of popular tax breaks that have to be approved every year because Congress would rather keep them off the long-term books.

And so it goes. Every year, it’s a race to the finish to ensure Washington taxpayers aren’t penalized for living in a state with no income tax. Every year, the delegation somehow pulls it off, although not without having to spend political capital to get the job done.

It’s a ridiculous spectacle that perpetuates the unfairness the deduction seeks to correct.
Sales tax deductibility was a regular part of the tax code until 1986, when it was dropped during a major overhaul of the federal tax laws. Residents of states with income taxes continued to deduct those payments from their federal income tax. But that same consideration was not offered to taxpayers in states with no income tax again until 2004.

The disparity is large. About one in three Washington taxpayers itemize their deductions and can take advantage of claiming sales tax. Without the deduction, they end up paying about $600 more each.

Does the sales tax deduction belong in a jobs bill? Probably not. Where it belongs is in federal tax code – but don’t expect Congress to tire of its toy anytime soon.

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