Tuesday, October 5, 2004

$500 tax break is in the works
Plan would allow Washington residents to deduct state sales fee on federal return

By CHARLES POPE
SEATTLE POST-INTELLIGENCER WASHINGTON CORRESPONDENT

WASHINGTON -- In a breakthrough that could mean a $500 bonus for thousands of Washington state taxpayers, congressional negotiators yesterday agreed to allow state sales taxes to be deducted from federal returns for the first time since 1986.

It would take place starting next year, and would last two years unless it is extended.

The provision, which has been aggressively pushed by lawmakers from Washington and six other states, was added yesterday to a sprawling corporate tax bill that House and Senate negotiators are working to complete before Congress adjourns at the end of the week.

"Getting it in the conference bill ... is a major victory for a lot of people," said Sen. Patty Murray, D-Wash., referring to the compromise legislation that merges competing bills passed earlier this year by the House and Senate.

"This is a significant step forward," she said. "It's the biggest momentum we've had to date. It's huge."

Despite remaining obstacles, supporters of the sales tax provision said they are optimistic the tax break will pass this year, meaning residents can take advantage of the change when they file their taxes in April.

At the same time, they cautioned that the fight is far from over. Lawmakers must resolve a collection of tough issues unrelated to the sales tax item in order for it to move through Congress and to President Bush.

The overall tax bill remains studded with controversial issues that negotiators are feverishly trying to resolve so the bill can pass this week. That would allow time to trumpet it to voters only weeks before the election.

Supporters of the sales tax provision also said they were disappointed because it would be in effect for only two years.

"Obviously it is better than nothing but I would have preferred it to be permanent," said Rep. Brian Baird, D-Wash., who has been leading efforts to restore the exemption.

The outcome could have political consequences as well. The sales tax issue has factored in the Senate race between Murray and Rep. George Nethercutt, R-Wash. Both candidates support the exemption and they have used it as a proxy for showing how influential they are in Congress.

Under the provision, residents of Washington and other states that have sales tax but no income tax would be able to deduct an amount this April by simply referring to a chart that shows annual income and estimated sales tax paid. The savings would vary, depending on the taxpayer's income. But proponents said most Washington taxpayers would save $300 to $500.

People can currently deduct state income taxes from their federal taxes, but not state sales taxes. But for 2004 and 2005 -- at a cost to the U.S. Treasury of $3.6 billion -- the bill would let taxpayers deduct whichever local levy is higher.

Tax analysts say roughly half of Washington state taxpayers could benefit from the break, which would be taken as an itemized deduction.

In addition to Washington, taxpayers in Florida, Nevada, South Dakota, Texas, Tennessee and Wyoming would benefit.

Lawmakers from Washington and the other six states have been working for years to convince Congress to restore a tax exemption that was eliminated in a tax bill passed in 1986. That change, they argued, unfairly penalized taxpayers in the seven states that rely only on a state sales tax to finance state government and services. All other states are financed by an income tax that taxpayers can deduct from their federal returns.

"This is a large step in getting Washington state taxpayers tax fairness," said Sen. Maria Cantwell, D-Wash., who sponsored the Senate version. "This is a very, very positive step forward."

Baird said he's confident the sales tax provision will stick because there is a coalition of 40 lawmakers in the House who've indicated they won't vote for any bill that does not include the exemption. That bloc is needed to ensure passage, he said.

For those who are wavering, Baird said supporters wouldn't hesitate to make it a campaign issue. "They would have to explain how they let this train leave with the sales tax exemption," he said. "We are fully prepared to ask this question during the campaign."

Nethercutt also praised the bill. "Today is a great day for Washington taxpayers. ... I hope my colleagues will not make the perfect enemy of a good plan to put money back in taxpayers' pocket," Nethercutt said.

House and Senate negotiators began reviewing the 633-page bill last night mindful that delays would cost U.S. industries millions of dollars.

The bill is designed to end accelerating European Union sanctions on U.S. products including jewelry, clothing and wood.

The tariffs, which started at 5 percent in March, rose to 12 percent Oct. 1 and are due to keep increasing by 1 percentage point each month that Congress fails to repeal a $5 billion annual tax break for American exporters. The World Trade Organization has ruled that the tax break violates global trade rules.

Hundreds of U.S. companies, including such prominent Washington state interests as Boeing, Weyerhaeuser and Microsoft, have pushed Congress to pass repeal legislation quickly, saying sales of $4 billion annually in U.S. exports to Europe are at stake.

The American Forest and Paper Association said last week that tariffs were hurting 165 wood and paper products exported by U.S. companies and warned that some firms would soon be forced into potentially "discontinuing exports of some of these products to Europe" because the tariffs have priced them out of the market. The biggest obstacle to passage was a fight over tobacco.

Both the House and Senate included a provision to pay farmers around $10 billion for Depression-era quotas they hold that govern how much tobacco they can grow.

The Senate measure also contains a provision that would let the Food and Drug Administration regulate tobacco as a drug. That provision, strongly opposed by House leaders, is not in the House-passed bill.

Senate supporters of regulating tobacco have raised the possibility of a Senate filibuster if the FDA provision is dropped from the bill that emerges from conference, dooming chances of quick passage.

http://seattlepi.nwsource.com/local/193780_tax05.html

I don't know what your problem is with this. You USED to be able to deduct sales tax until they erased it during Reagans era. Taxing money  that was spent on another  tax is double taxation on a portion of your income. All states should allow this again.

KA3B did not indicate that he had any problem with this. he only cut and pasted an article.

Quoted: KA3B did not indicate that he had any problem with this. he only cut and pasted an article.

I took the  way the thread title  was worded to be a negative stance against the bill.

Thanks for getting my back Combat_Jack.

Guess some people need to read.....

Now how on Gods green earth did you come up with that??

If I didn't like it I would have used "FUCK" once or twice.

The quotations around the word "break" are to indicate that it's not an actual tax break.

Quoted: I took the  way the thread title  was worded to be a negative stance against the bill.

Quoted: Now how on Gods green earth did you come up with that?? If I didn't like it I would have used "FUCK" once or twice. The quotations around the word "break" are to indicate that it's not an actual tax break. Quoted: I took the  way the thread title  was worded to be a negative stance against the bill.

Precisely because of the quotation marks.

Fuzzy math.

The theory is that since those in state like Cali can deduct their state income tax, those in states like Nevada should be able to deduct their sales taxes.  Completely ignoring that the states with income taxes also have sales taxes, often at a higher rate than states like Nevada.  If the residents of any state can deduct their sales taxes than it should apply to all states.

The problem is that states with a high income tax get a high subsidy from the Feds while states with no income tax get no subsidy.

GunLvr

I hate sales tax.

Quoted: I hate sales tax.

I hate income tax more.

Quoted: The problem is that states with a high income tax get a high subsidy from the Feds while states with no income tax get no subsidy. GunLvr

What "subsidy"?  Cali gets significantly less back from the Feds on every dollar we send them than most states.  That has more to do with how agressive your congress criutter is in pork barrel politics than anything else.  Some states get more than $2.00 back in grants & services for every $1.00 they put in.