Sales tax deduction still alive

WASHINGTON – Lawmakers on Thursday pieced together legislation extending popular tax breaks and saving doctors from a cut in Medicare payments as Republicans prepared to cede control of Congress to the Democrats.

House GOP leaders delayed a vote after it became clear it couldn’t occur until well after midnight. The House vote was rescheduled for today.

Included in the bill is the extension of the state sales tax deduction, which allows residents of Washington and similar states to claim that tax as a deduction to their federal income tax. Washington is one of seven states that have no state income tax, which has long been deductible, and relies more heavily on the sales tax, which was not deductible from 1987 through 2004.

The state sales tax deduction, and several other tax breaks in the bill, are set to expire at the end of this year. It became a major political football in Washington’s political campaigns earlier this year when the tax deductions were blocked in a fight over a plan to raise the federal minimum wage.

In the Senate, leaders were experiencing lingering unhappiness with the bill from several GOP senators, especially over extending trade benefits for textile exports from Haiti.

The legislation also contained several trade-related measures, including extending normal trade status to Vietnam.

Action on the tax and trade legislation and a subsequent vote on a bill to keep the government running through Feb. 15 were the chief obstacles to concluding the turbulent 109th congressional session.

It was hardly the first time the GOP-controlled Congress had employed a secretive, closed-door process to assemble important legislation. Still, Democrats supported the contents of the bill – if not the way it was put together.

“This is not a perfect bill, but it renews tax cuts Americans need right now, like the college tuition deduction, and makes sure that Medicare and Medicaid patients will have access to care next year,” said Sen. Max Baucus of Montana, top Democrat on the Finance Committee.

But the massive measure – containing much to please lawmakers and their constituents – also generated opposition. Sen. Judd Gregg, R-N.H., for example, was unhappy about its cost and a multibillion-dollar move to expand health care for retired coal miners.

Sens. Maria Cantwell and Patty Murray and Rep. Brian Baird, all Washington Democrats, urged their colleagues to approve the bill.

“This package of important tax provisions for Washington’s middle class, like the state sales tax and college tuition deductions, should be able to pass the Senate in the next few days,” Cantwell said Thursday in a statement. “We need this to get done before Congress adjourns for the year so that we can start letting Washingtonians know that they will be able to take advantage of this vital deduction on their 2006 and 2007 taxes.”

Cantwell and other lawmakers called it unfortunate that the sales tax provision was not renewed before the Internal Revenue Service sent federal tax forms to the printers, but they said they would work hard to publicize the sales tax deduction before residents begin filing their tax returns next spring.

The tax deduction is estimated to have saved Washingtonians more than $500 million last year – or about $500 per family.

Lawmakers from states such as Georgia, Illinois and Massachusetts were unhappy that House Republicans cut out a plan to ease looming budget shortfalls in a federal-state program providing health insurance coverage to low-income children. And New Yorkers seethed after Republicans dropped tax incentives for a rail link from Manhattan to Kennedy Airport.

At the same time, lawmakers were generous with tax-free health-savings accounts used chiefly by higher-income taxpayers, increasing contribution limits at a cost of $1 billion over the next decade.

Also driving the massive bill forward was an effort to forestall a 5 percent cut in Medicare payments to doctors and a plan to open more than 8 million acres along the Gulf of Mexico to oil and gas drilling.

But Democrats criticized Republicans for giving up on legislation funding more than $460 billion in unfinished agency budgets, requiring passage of a third stopgap spending bill to keep the government running.

The House and Senate planned votes today to avoid a government shutdown.