Tax-cut bill includes sales tax deduction for 9 states

McClatchy NewspapersDecember 13, 2010 

WASHINGTON — The Senate on Monday cleared the way for a final vote on a $858 billion tax package that will allow residents of Washington and eight other states without state income taxes to deduct the sales tax they paid on their 2010 and 2011 federal returns.

Besides Washington, the states include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming.

Both Washington state senators, Democrats Maria Cantwell and Patty Murray, supported the controversial package, while some of their colleagues on Capitol Hill continued to attack it as providing billions of dollars in unnecessary tax relief for the nation's wealthiest.

The compromise package of tax cuts, negotiated by the Obama White House and Republican leaders with congressional Democrats mostly on the sidelines, would extend the Bush-era tax cuts for two years for all taxpayers regardless of income. Extending those tax cuts for all was a top Republican priority.

The plan provides for 13 months of extended unemployment benefits, a top Democratic priority, and temporarily reduces the payroll tax on workers. But the measure also reduces the estate tax from 45 percent to 35 percent on individual estates of more than $5 million. That provision has drawn the ire of Democrats who argue it is way too generous.

Even so, Cantwell and Murray supported a motion to cut off debate and bring the bill to a vote. The final vote in the Senate could come midweek, and in the House by the end of the week.

Murray said Republicans had held the tax cuts for the middle class "hostage" in order to secure tax cuts for the richest Americans.

"The Republican game plan is simply irresponsible," Murray said. "Extending benefits to those who need them least and adding to our deficit is wrong. But I could not sit back and allow taxes to be raised on Washington state families who are just struggling to get by."

Among the few provisions in the bill Murray liked were the extension of unemployment benefits and state sales tax deductions.

"Unfortunately, protecting the vast majority of Washington families came with an unnecessary and irresponsible provision for a few Americans who aren't facing the same hardships," she said.

Cantwell has no immediate comment.

The sales tax deduction saves Washington state's roughly 1 million taxpayers between $350 million and $500 million annually on their federal returns. By some estimates, the deduction has put an average of $600 more per year in the pockets of Washington state taxpayers. It was set to expire at the end of this year.

The deduction was eliminated in 1986 when the federal tax code was simplified.

Taxpayers who lived in states with an income tax, however, were allowed to continue deducting state income tax on their federal returns. Washington state does not have an income tax.

The sales tax deduction was restored in 2004, but Congress has refused to make it permanent.

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