Renew deduction, make it permanent

Published on Saturday, 28 December 2013 20:25 - Written by

President Barack Obama’s new mantra — which, really, is also his old mantra — is “fairness.” These days he’s talking about income inequality, but his proposed fix is (as always) in the tax code.

If he’s serious about tax fairness, then he should support a congressional effort to extend and make permanent the sales tax deduction for states including Texas and Florida. Americans elsewhere get to deduct their state income taxes from their federal taxes, and so should we.

The sales tax deduction is slated to expire Tuesday night.

“Taxpayers who itemize state taxes on their federal taxes could find themselves out of luck if those deductions fall victim to congressional budget talks,” the Washington Post notes. “Without congressional action, which appears unlikely, those deductions will expire at the end of the year. That means fewer deductions and higher federal taxes for residents in states that rely more on sales taxes than income taxes for revenue, according to a new analysis from the Pew Charitable Trusts.”

The sales tax deduction was something former Sen. Kay Bailey Hutchison fought long and hard for. She joined with Democratic Sen. Patty Murray of Washington to win passage of a deduction — albeit temporary — in 2004, and an extension in 2006. Since then, it’s been a constant fight to keep it.

There are some policy reasons for that. Many in Washington believe sales taxes are the wrong way to pay for government services — they’re not considered a “progressive” tax.

However, they’re more fair, in the sense that Obama often uses that elusive word. Everyone pays something in sales taxes. That means everyone has a stake in government. Progressive like income taxes because they can use exemptions to reward, discourage, and influence various behaviors.

(To be sure, sales tax exemptions can be used the same way.)

The sales tax is, in fact, “progressive” in that the wealthy pay more than the poor and the middle class — because they buy more stuff and more expensive stuff.

But Sen. Hutchison’s successor hasn’t taken up the fight for sales tax deduction with quite the same vigor. Mostly, his answer to problems in tax policy — and the IRS scandal — is to propose abolishing the IRS. That may be a great idea, but it’s not realistic. It’s not going to happen under this (or any) foreseeable administration.

So we’ve got to look at real-world fixes for tax inequities, such as the sales tax deduction.

Ironically, it could be tax-and-spender Senate Majority Leader Harry Reid who pushes an extension of the sales tax deduction. He’s under lots of pressure in his home state of Nevada.

“Nevada is one of nine states that do not have an income tax, instead funding government largely through sales taxes,” opines his hometown newspaper, the Las Vegas Review-Journal. “It’s a mostly voluntary system that taxes people on what they consume — and puts more money in their pockets to spend on goods and services — instead of penalizing them for being gainfully employed.”

The sales tax deduction shouldn’t merely be revived. It should be made permanent. That’s fair.