Democrats and Republicans agree on precious little these days. When it comes to the sorry state of the U.S. tax code, however, consensus for real reform actually appears possible.
That’s not to say the parties agree on tax rates, or how rates should be distributed among income levels, but it is powerful testimony about just how dizzying the maze of allowances, exemptions and loopholes has become. No matter which party occupies the White House next year, chances appear good for serious tax simplification.
It will be glaringly incomplete, though, if it doesn’t solve a major inequity: the deductibility of state and local sales taxes for taxpayers from states that have no personal income tax.
Washington, of course, is one such state. There are seven others.
Even though taxpayers in the other 42 states are permanently able to deduct what they pay in state income taxes from their federal returns, Washington taxpayers have to wait most years to find out whether Congress will allow them to deduct their state and local sales taxes.
The nearly annual ritual is underway in the other Washington, where on Tuesday Sen. Maria Cantwell (D-Wash.) and Sen. Marco Rubio (R-Fla.) introduced an amendment to make sales taxes in non-income-tax states deductible in 2012.
(Don’t worry, sales taxes are deductible here for the 2011 tax year — the year for which returns are due next month. The Cantwell-Rubio amendment applies to the return you’ll file next year.)
We applaud the doggedness of Cantwell, who has helped lead this charge every year since sales-tax deductibility returned in 2004. But it’s patently unfair and ridiculous that this ritual must occur year after year.
The solution is simple enough: Make sales taxes permanently deductible in states without an income tax. Either that or stop allowing deductions of any state or local taxes — income, sales or otherwise.
Sales tax deductibility saves Washington taxpayers who itemize their deductions an average of about $500 a year. And everyone benefits from the roughly $500 million that stays in the state’s economy.
Five-hundred bucks is a substantial sum, and Washington families shouldn’t have to guess whether they’ll get it. Economists agree that tax predictability is essential for business planning — that a lack of it holds back investment and hiring. The same logic should apply to families planning their budgets. The less income they can count on, the less they’re apt to spend, putting an unnecessary drag on the economy.
If real tax-code reform is truly in the offing next year, ending this deductibility guessing game mustn’t be overlooked.