Editorial: Sales tax deduction critical for consumers

By:  Editorial Board
Source: The Spokesman-Review

For the fourth time since 2004, Washington consumers who might want to go out and buy a car or build a home, transactions that boost employment, cannot be sure sales taxes paid on those big purchases will be deductible when federal income taxes come due in April 2013.

This biennial fire drill must stop.

The deduction will save Washington federal income tax filers an estimated $406 million this year. That tremendous purchasing power is at risk every time the deduction’s renewal becomes a handy club for a Democratic or Republican party leader in need of a vote or two to pass legislation.

The Washington Department of Revenue projects 3,900 jobs would be lost if the deduction goes away.

Residents of seven other states, including heavyweights Florida and Texas, share our plight. Together, residents of these eight states deduct less than $16 billion in sales taxes, compared with $236 billion in deductions claimed for state income tax payments; a provision sacrosanct to senators and representatives from 42 other states that tax income.

Fairness would dictate equal treatment for the sales tax, but fairness is a weak leg to stand on in Washington, D.C. The deduction’s legislative history is not reassuring.

It was off the books entirely for 18 years before 2004, when it was among 270 provisions of the American Jobs Creation Act. It was revived in the Tax Relief and Health Care Act of 2006, the Economic Emergency Stabilization Act of 2008 and the 2010 renewal of the Bush administration tax cuts, which sunset the provision at the end of this year.

So, the melodrama starts again.

The next opportunity to get an extension comes soon, with the debate over renewing the payroll tax break. But Monday’s decision by GOP House leadership to not insist on pairing that relief with spending cuts could be trouble. First, it could put off a decision on the deduction until the Bush administration tax cuts come up for renewal at the end of the year. Second, and much worse, a decision could be made to start offsetting the cost of rolling over the payroll tax break by allowing the sales tax deduction to lapse.

Meanwhile, in Olympia, Gov. Chris Gregoire’s proposal that an additional one-half cent be added to the sales tax to pay for K-12 remains viable, if not vital. Losing the income tax deductibility might be the killer. A capital gains tax some consider a partial alternative is not helpful. Those payments would not be deductible either.

U.S. Sen. Maria Cantwell is sponsoring SB 24, which would make the sales tax deduction permanent. But with a natural constituency in that body of only 16 out of 100 lawmakers, it’s easy to figure the odds, even though the support is bipartisan.

Also, with Cantwell up for re-election, Republicans may attempt to use an inability to get the deduction re-upped as a campaign weapon, as they did when Dino Rossi was trying to unseat Sen. Patty Murray in the 2010 election.

SB 24 is all of four lines long, including the bill title. This should be easy to do.

Should be.