Sales tax exemption is a must

By Don C. Brunell

Before Congress adjourns this year, it needs to renew the federal tax deduction for Washington state sales taxes. Our delegation should insist on it.

If they fail to do so . . . they will be guilty of discriminating against the citizens of Washington and seven other states.

Most states have a state income tax, which residents can deduct from their federal taxes. But states without an income tax could be punished by losing the federal deduction for sales taxes when it expires at the end of this year.

Washington residents used to be able to take a deduction for sales taxes, but that deduction was removed in 1986. It was restored in 2004 for two years.

Some 970,000 Washington residents benefit from the sales tax deduction. The Congressional Research Service estimates the total economic benefit to our state could be as much as $541 million, which works out to $575 per taxpayer. The primary beneficiaries are working families where moms and dads work hard and struggle to make ends meet.

Proponents say it's only fair that Washingtonians and others in states without an income tax be able to deduct their sales taxes when filing with the IRS. Citizens in Montana and Oregon, where there is no sales tax, get a break on their federal filings, why shouldn't we?

Opponents say the deduction is too costly and benefits only upper income people who buy a lot of consumer goods. They claim lower income people don't pay federal income taxes anyway, so the deduction is irrelevant to them. In fact, the bottom 50 percent of U. S. taxpayers pay only 3.5 percent of federal income taxes.

Just go to an auto mall and look at who is buying minivans or economy compact cars to drive to work or their children to school, soccer practice, or doctor appointments. It is families who take out auto loans and are strapped for cash. Shouldn't Congress treat them the same as they do for families in state income tax states?

Washington's Congressional delegation worked to renew the deduction, but last summer, election year politics got in the way of reauthorizing it permanently. It was included in a larger package of bills by Republicans that also abolished the federal death tax and raised the minimum wage. Democrats wanted to vote separately on parts of the bill, but Republicans wanted to link the three issues together.

Forget the politics, just do it!

While members of Congress kick around this political football, the clock is ticking. The Internal Revenue Service is set to send next year's tax forms to the printer any day now. Even if the politicians do renew the deduction in November, it may not be included in the 2006 federal tax forms.

Allowing the sales tax deduction is good for business as well. Shop owners pay sales taxes too and benefit from the economic shot in the arm when people get their federal income tax refunds. A little bigger check would help.

The bottom line is this: We must have a level playing field and treat all citizens fairly. Congress should make the sales tax deduction permanent. Continuing to pass temporary renewals only guarantees that the sales tax deduction will remain a political football and that is not good for families, business or our state.

The people of Washington state deserve better.

Don C. Brunell is president of the Association of Washington Business and can be reached at 360.943.1600 or donb@awb.org