Lawmakers fight for sales tax deduction

More than five dozen House members are pressing leaders of a tax panel to preserve a deduction for state and local sales taxes. 

The bipartisan group of lawmakers say it would be unfair to voters in their states not to extend the sales tax deduction, given that taxpayers would still be able to deduct state and local income taxes. 

“If the deduction is not extended, millions of taxpayers living in states without an income tax will shoulder a larger share of the federal tax burden since they cannot claim the deduction for state income taxes,” the lawmakers wrote to the top Democrat and Republican on the tax-writing Ways and Means Committee. 

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“The sales tax deduction saves taxpayers in our states millions of dollars per year and is a vital component of our states’ economies, spurring growth and creating jobs,” added the letter, spurred by Reps. Kevin Brady (R-Texas) and Jim McDermott (D-Wash.), two senior members of the House Ways and Means Committee.

Eight states in all — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — currently use a sales tax, but either don’t have or have a very limited state income tax. 

The income tax deduction for state and local sales taxes expired at the beginning of 2012, like a host of other targeted tax breaks commonly known as extenders. Under the tax breaks, taxpayers can deduct local sales taxes in lieu of deducting state income taxes. 

The letter comes as many lawmakers hope to finish off an extenders package once Congress returns to Washington after November’s elections. Lawmakers will have to grapple with expiring Bush-era tax rates — just one part of the so-called fiscal cliff — when they return, and tax extenders could be tacked on to a broader package. 

The Senate Finance Committee has already passed an extenders package of its own, which included a two-year extension — at a cost of an estimated $4.4 billion over a decade — of the sales tax deduction. 

House tax-writers have long said they did not expect to deal with extenders until at least November, and have been conducting their own review of expired and expiring preferences. 

At an April hearing, several House members from both sides of the aisle made a pitch for the sales tax deduction. 

But some GOP lawmakers have also lashed out at Congress’s efforts on extenders, saying that preserving the tax breaks sets a bad precedent as lawmakers seek to broadly revamp the tax code.