Something is getting lost in the partisan bickering in Congress over extension of the payroll-tax break and unemployment benefits.
That would be the sales-tax deduction – which could be seen as a mini financial stimulus for the seven states, including Washington, that don’t have a state income tax.
The deduction, which has been renewed by Congress year-to-year, allows people who itemize their federal income tax to write off state and local sales taxes. Residents of states that have a state income tax can choose to deduct either that tax or the sales tax from their federal income tax.
In Washington state, the deduction lowers the average itemizer’s taxable income by $2,100. Besides being a money-saver, the deduction can put some people in a lower overall tax bracket – giving them even more disposable income to help get the economy going again. It’s been estimated to put about $600 annually into the average taxpayer’s pocket.
But once again, renewing that deduction has been left to the last minute – to be used as leverage by lawmakers from income-tax states to squeeze votes from sales-tax state delegations on unrelated issues. This year the deduction appears to be getting lost in the shuffle as members of Congress focus on the payroll-tax and jobless benefits issues so they can get out of town for the holidays.
Don’t despair quite yet – or start filling out your tax form as soon as the W-2 arrives. There’s still a chance Congress will act in 2012 to extend the sales-tax deduction retroactively. Better yet, it could always decide to make the deduction permanent. But that would be fair and sensible, and require a measure of bipartisan cooperation, so it’s unlikely to happen.
In the meantime, taxpayers from Washington – as well as Alaska, Texas, Wyoming, Florida, Tennessee and Nevada – will once again have to play a waiting game to see if they will be treated as fairly as those in the other 43 states.
If 2011 concludes without action to extend the sales-tax deduction, Washington’s delegation must resolve to get it done as soon as possible in the new year.