It might have seemed like Christmas had come in October when Congress passed and President Bush signed the restoration of the federal deduction for state and local sales taxes. For the first time since 1986, Washingtonians who itemize their federal tax returns will be allowed to deduct the substantial sums they pay each year in sales tax.
But this shouldn’t be seen as a gift from Uncle Sam. In truth, it’s a much overdue move toward fairness.
Sen. Maria Cantwell and Rep. Brian Baird deserve applause for co-authoring and pushing this change. There’s work yet to do, however, because the provision has only been approved for the 2004 and 2005 tax years. Cantwell, Baird and others in Congress now must see that this deduction is made permanent.
Washington is one of eight states that have no state income tax. When Congress eliminated the deductibility of sales taxes in 1986, taxpayers in those eight states were unfairly penalized because of the way their states collect revenue. While taxpayers who paid state income taxes were allowed to continue deducting them from their federal returns, folks in Washington essentially were assessed a huge tax increase.
Now, Washington taxpayers who itemize their federal returns are expected to save an average of $300 to $500 by taking advantage of deductions included in an IRS table. Those who save receipts and deduct what they actually pay in sales taxes could save more, perhaps hundreds more.
The windfall is figured to pump some $500 million into a state economy that could use the boost.
Already, though, there is talk that President Bush might propose doing away with the sales tax deduction to help reduce the budget deficit. We favor deficit reduction, but it must be done fairly. If all deductions of state and local taxes are eliminated, including income taxes, the burden would be shared evenly. Fairness must be a fundamental principle in any federal tax-system overhaul.
President Bush, whose home state of Texas is one of the eight that have no income tax, shouldn’t have any problem buying into that idea.