Lawmakers left Washington, D.C., last week without renewing the sales tax deduction enjoyed by taxpayers in Washington and a handful of other states for the past two years.
Democratic Sen. Maria Cantwell and others urged the U.S. Senate again last week to extend the deduction, but it wasn’t considered before Congress recessed for the election season. The Senate won’t reconvene until mid-November.
Cantwell, in an e-mailed statement on Monday, was clear about where she was placing blame.
“This is a common-sense deduction that ensures tax fairness, helps working families and has overwhelming support in Congress,” Cantwell said. “Senate Republican leaders’ insistence on holding this deduction hostage to use as a bargaining chip is extremely disappointing.”
Senate Majority Leader Bill Frist, whose home state of Tennessee is affected by the deduction, and other Republicans, however, blame the minority party. They point out that the sales tax deduction was part of a wide-ranging tax bill that was rejected in August.
The complex bill, in addition to renewing the sales tax deduction for residents of states without an income tax, would have cut the federal estate tax. That, as well as the possible ramifications for tip-earners of a provision raising the federal minimum wage, earned the bill “no” votes from Washington Sens. Cantwell and Patty Murray, both Democrats.
Cantwell’s opponent, Mike McGavick, has criticized that vote, saying Cantwell missed an opportunity to extend the deduction and voted in her party’s interests instead of her constituents’.
In most states, taxpayers are allowed to deduct state income taxes when they pay federal income taxes each year.
For nearly two decades, however, residents of states with a sales tax but no state income tax could not deduct what they paid to the state. Proponents of the deduction argued it wasn’t fair that residents of those states were consequently taxed twice.
Since the new sales tax deduction took hold in 2004, with Cantwell’s co-sponsorship, residents of Washington state have saved an estimated $500 million per year. In the deduction’s first year, nearly 850,000 taxpayers took advantage of it, saving an average of about $550 per family.
Under the 2004 bill, however, the deduction expired after two years.
Without renewal, the deduction will not be allowed for the 2006 tax year.
Frist has said in news reports that he thinks the deduction has a decent chance of passing after the November election. Cantwell’s office said it will press the issue at that time as well.
There will be one problem, however, if the deduction is made permanent then: This year’s tax documents and instructions probably won’t reflect that. The IRS is having those printed this month.
That will make it tougher to let the state’s taxpayers know about the deduction if it’s passed in November, Cantwell said.
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
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