THREE the hard way
Posted on 06/05/2004 12:57:42 AM PDT by lewislynn
June 5, 2004, 12:01AM
Texas taxes may be worth a federal income tax break after all.
Republican leaders in the U.S. House on Friday resurrected a plan that would benefit Texans, and residents of six other states, by allowing taxpayers to deduct state and local sales tax on their federal income tax returns.
Majority Leader Tom DeLay,R-Sugar Land, and Rep. Kevin Brady, R-The Woodlands, helped get the bill slated for a vote on the House floor in about two weeks. The proposal, once considered dead partly because of disinterest by lawmakers from the 43 other states, is revived because it has been attached to a weighty bill on the separate issue of corporate tax breaks.
An average Texas family of four that claims itemized deductions on federal tax returns would save about $300 a year under the plan, according to estimates by the Texas Comptroller's Office based on 2002 statistics. One billion fewer dollars would flow to the federal government from Texas taxpayers every year.
State GOP leaders are behind the plan, saying it would keep money in the state and lead to the creation of jobs. The bill has support from federal lawmakers in both major parties; opposition to the larger bill may come from those who say that other tax breaks pushed by the Bush administration have led to budget deficits and program cuts.
The plan would allow taxpayers in every state to deduct whichever amount is higher -- state and local income taxes or state and local sales taxes.
State and local sales tax could be deducted before 1986, when Congress ended the privilege.
Taxpayers currently are allowed to deduct state and local income taxes from federal returns. Critics say the rule leaves people at a disadvantage in states with no state or local income taxes.
If the bill passes the House, it would be negotiated with the Senate's version that passed last month without the sales tax feature.
Brady has pushed the plan for three years.
"This is a real emotional issue in Texas," Brady said. "Taxpayers will save nearly $1 billion a year in Texas. It's a huge economic boost. Plus, it's an issue of fairness."
Brady credited DeLay with getting the sales tax deduction added to the larger bill. As a result, at least 15 lawmakers who opposed the larger bill now favor it, Brady said.
Under the plan, taxpayers would get a deduction for the exact amount of documented sales taxes they paid during the year or from a table of deduction amounts based on income.
About 20 percent of Texas taxpayers itemize deductions on federal income tax returns now. In 2001, 295,231 tax returns from Harris County claimed itemized deductions, according to the Internal Revenue Service.
The tax break would last only two years under the plan unveiled Friday by House Ways and Means Committee Chairman Bill Thomas, R-Calif.
But, Brady said, "once we have opened the door, and considering the major states that are keen on this, I am confident we will keep the deductibility for many years."
The larger bill, crafted by Republicans, would repeal an export tax break that was ruled illegal by the World Trade Organization and replace it with a new set of corporate tax cuts. The European Union places sanctions on some U.S. products each month that the export tax break is in place.
After months of struggling to round up votes for the international tax cut bill, House leaders saw the sales tax provision as a way to get more Republican and Democratic votes from states that do not have state and local personal income taxes.
Those states include Tennessee, home of Senate Majority Leader Bill Frist, and South Dakota, home of Senate Democratic Leader Tom Daschle.
The leading Democrat on the House's tax-writing panel, Rep. Charles Rangel of New York, favors the sales tax deduction option and wants it to be permanent.
"(Ways and Means chairman) Thomas is a `Johnny-come-lately' to that (and) is including it now because he feels he has to to get the votes," said Rangel spokesman Dan Maffei.
THREE the hard way
Keeping track of sales taxes paid has been thought to be impractical (although in the era of plastic card transactions, it might be more easily accounted for.)
The better solution is to lower rates overall, and eliminate the federal tax benefit enjoyed by residents of high income tax states (like Oregon, with a 9% income tax, and no sales tax.) Note that this special provision was brought home to Oregon by an influential Senator (Packwood? Hatfield? Chair of Ways and Means? Finance?)
It is easy to keep track of sales taxes paid. Just keep all your receipts. If democrats are too stupid to keep their receipts, then it is their tough luck.
Overall, I like the idea.
For those unable or unwilling to keep track of all their purchases, there's always a table of taxation based on your income, by state.
That's the way it was done before '86, it was pretty simple, and by my calculations worked well enough that I eventually quit keeping receipts except for big ticket items like a new car.
Houston concurs....
"It is easy to keep track of sales taxes paid. Just keep all your receipts"
The way my wife shops, I would have to find an empty closet just for all of the receipts.
It might be worth the effort.
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