Nothing is more certain than death and taxes — and, seemingly, the December battle over the sales tax deduction.
Again this year, Congress is going through the ritual of “deciding” whether to extend the deduction, which people in Washington and six other states rely on. The House on Wednesday approved a retroactive extension good for only 2014. Next year, it will be another fight.
People in other states can count on subtracting a portion of their state income taxes from their checks to the Internal Revenue Service. The principle is that the feds and the states shouldn’t be double-taxing the same personal income. But the principle plays favorites. Washingtonians — like the other states without an income tax — must fret every year or two as Congress plays politics with one of their most important deductions.
It’s serious money. In this state, the average sales tax deduction is worth about $600, which comes in especially handy when facing a large federal tax bill.
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The politics on this goes way back. A permanent sales tax deduction was repealed in 1986, in part to coerce states — like Washington — that historically preferred them to income taxes. Sales taxes weigh more heavily on the poor, the argument went, so federal tax policy should encourage states to adopt more progressive systems.
That was the theory; whatever its virtues, it didn’t work. Washington never did adopt an income tax and its voters show no inclination to do so now. The social logic of coercion has since given way to the political logic of using the deduction from one year to the next as a legislative bargaining chip and as a gift to constituents. Because there is no permanent deduction, our representatives can grandly bestow the temporary one again and again.
It’s arbitrary and unjust that most Americans know they can write off their state taxes while Washingtonians face perpetual uncertainty. It also doesn’t say much for the effectiveness of our congressional delegation, who could potentially leverage the votes of Texas, Nevada, Florida and three smaller states to secure a permanent deduction.
Congress never addresses this issue on its merits. The annual stopgap state sales tax deduction gets shoved into a package of dozens of “tax extenders,” where it is handcuffed to items that can’t stand on their own. The House-approved bundle, for example, includes breaks for owners of race horses, rum exporters, Hollywood producers and NASCAR race tracks. Vote for one, vote for all.
This year has brought additional complications. The state deduction had been part of a larger legislative deal that would have made many temporary breaks permanent, but President Obama killed it — mostly for good fiscal reasons — with a veto threat. What we’re left with is yet another temporary package that will apparently expire in less than four weeks and set the stage for another battle next December.
This is a spectacularly poor way to do tax policy. Among other things, it denies certainty to businesses that need to know what to expect from the tax code before they make investments.
And it is spectacularly unfair to Washington citizens, who are being denied a tax assurance that people in 43 other states take for granted.