WASHINGTON — President Barack Obama signed an $858 billion tax measure Friday that will allow Washington state residents to deduct state sales tax paid on their 2010 and 2011 returns.
The House of Representatives gave final approval to the compromise bill in the wee overnight hours Thursday after the Senate had approved it earlier in the week. The bill will prevent taxes from increasing on virtually all Americans on Jan. 1, extends jobless benefits for an additional 13 months and puts money directly in workers' pockets by temporarily cutting the Social Security payroll tax by 2 percentage points.
The legislation also renews 38 expiring tax breaks, including those for teachers, energy companies, areas devastated by Hurricane Katrina and the state sales tax deduction.
Even though the measure included the sales tax deduction, four Washington state representatives — Adam Smith, Brian Baird, Jay Inslee and Jim McDermott — voted against it. The measure was approved 277-148, with 112 Democrats and 36 Republicans voting no.
Smith said he voted against the bill because it would add nearly $900 billion to the federal deficit and did not address the "desperate" need to overhaul the federal tax code.
"We missed a big opportunity," he said.
As for the sales tax deduction, Smith said, "I won't take a sales tax deduction with a $900 billion addition to the deficit."
The rest of the state's congressional delegation — Democrats Norm Dicks and Rick Larsen and Republicans Dave Reichert, Doc Hastings and Cathy McMorris Rodgers — supported the measure.
Dicks said he voted for the measure because he didn't want taxes to go up on the middle class next year, Republicans had agreed to the extended unemployment benefits and it included the sales tax deduction.
"It's something we fought for and I'm glad we were successful," Dicks said.
Reichert conceded the compromise legislation wasn't perfect.
"A compromise rarely is," he said. "But perfection shouldn't be a barrier to doing what's practical, necessary and right — especially in these difficult times."
Larsen said he was well aware the measure negotiated by the White House and congressional Republicans was unpopular in some circles because it added to the deficit and provided tax breaks to the wealthy.
"I share the anger of people who are calling my office, upset with the president and the fact that he caved to the wealthiest Americans," Larsen said. "But I can't let that anger get in the way of what this tax cut deal can do to grow the economy, create jobs and help the folks in my district who need this help."
The sales tax deduction seems to get renewed annually just as Congress prepares to adjourn, and this year was no exception.
The deduction saves Washington state's roughly 1 million taxpayers between $350 million and $500 million. By some estimates, the deduction puts an average of $600 in the pockets of the each of the state's taxpayers annually.
Washington is one of seven states that have only a sales tax and no state income tax. The others are Texas, Florida, Nevada, South Dakota, Tennessee and Wyoming.
When the federal tax code was simplified in 1986 the deduction for state sales tax was eliminated. Taxpayers in states with incomes taxes were allowed to continue deducting what they paid in state income tax on their federal returns.
The sales tax deduction was restored in 2004, but Congress has refused to make it permanent. Instead, it has been a sweetener used by congressional leaders looking for votes on controversial bills near the end of a session.