Plan would make Washington sales taxes deductible

Some residents of Washington would get a break on their income tax under a congressional plan that seems to be gathering steam after years on the back burner. Election-year politics may be providing some of the heat.

U.S. Rep. George Nethercutt held a press conference by phone Tuesday to tout the plan, which he said was the result of behind-the-scenes lobbying of Republican leaders by himself and two GOP colleagues from Washington state.

“It is a job-creation vehicle,” Nethercutt said of the proposal to give taxpayers in nine states a deduction of as much as $1,000 on their yearly tax calculation.

The details of the deduction – including how it would be calculated to account for the different states’ sales tax rates – are still being worked out, he said. Asked to provide details on the amount of savings an average family might expect, the Spokane Republican replied: “I haven’t calculated it yet. We haven’t voted on this yet.”

But it would be available only to taxpayers who itemize their deductions and live in Washington or the eight other states with a sales tax but no income tax.

Since 1986, state income taxes have been deductible but state sales taxes have not because of a major overhaul of the federal tax system. Ever since that time, members of Congress from Washington and those other states have tried to get it back.

The latest proposal would be an amendment to the Foreign Sales Corporation/Extraterritorial Income tax package that is being discussed by the House Ways and Means Committee, the panel that handles tax policy. Nethercutt doesn’t sit on the committee, but he has written letters to Chairman Bill Thomas and Majority Leader Tom DeLay to push for a restoration of sales tax deductibility.

Nethercutt’s office said in a press release he had “secured” that provision, although Thomas was quoted Tuesday morning in Congress Daily, a Capitol Hill newspaper, as saying nothing was definitely in or out of the bill. In discussing the plan, Nethercutt credited Rep. Jennifer Dunn of Bellevue and Rep. Doc Hastings of the Tri-Cities as working the GOP leaders with him.

Other members of the Washington delegation, particularly Rep. Brian Baird, a Vancouver Democrat, have pushed for such a plan for years. But the House is controlled by Republicans and they’re not likely to listen to Baird, Nethercutt said.

“They’re going to listen to me. Baird’s been talking about it but he hasn’t been able to get it done,” Nethercutt said.

Nethercutt said the biggest danger to this proposal was “obstruction by the Senate … if the minority wanted to frustrate this measure as it comes out of the House.”

The Republican-controlled Senate passed its version of the Foreign Sales Corporation tax bill last week by a vote of 92-5, with the no votes split between two Democrats and three Republicans. Washington Sen. Patty Murray, Nethercutt’s potential campaign opponent this fall, was a co-sponsor of the bill and voted yes.

A similar amendment on state sales tax was proposed in the Senate by a bipartisan group, including Murray and Senate Majority Leader Bill Frist, who will be campaigning with Nethercutt next week in Washington.

But that amendment never came up for a vote, said Mike Spahn, a spokesman for Murray.

If the House passes the Foreign Sales tax bill with the sales tax deduction in it, members of the House and Senate will have to figure out a compromise, known as a conference report, which could include the deduction.

“It’s certainly something we would support,” Spahn said. “Sen. Murray has been working on this for a long time.”