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Editorial: Tax fairness made permanent

Thu., Dec. 17, 2015

Ending what was a sure-fire, year-end topic for Washington’s editorial boards, Congress is on the verge of granting a permanent deduction for state and local sales tax to states that don’t have an income tax.

Don’t weep for editorial writers. We’ll get over it. We’re sure the state’s delegation will be happy to move on, too. The state’s taxpayers will also bid a fond farewell to the unfairness and uncertainty they put up with for three decades.

The deal means taxpayers in the eight states that do not have an income tax – Washington, Wyoming, Alaska, Florida, Nevada, South Dakota, Tennessee and Texas – can count on getting a similar deduction.

Under the last major overhaul of the federal tax code, in 1986, Congress allowed taxpayers to deduct their state income tax payments on their federal forms. In states without an income levy, taxpayers were left with no way to deduct non-federal taxes.

For the first 18 years, Washington state was out of luck, but in 2004 Congress began granting temporary reprieves to the eight states during the annual horse-trading that extended a variety of tax deductions with expiration dates.

So the issue went from being ignored to being leveraged by members of Congress in search of support for their favorite tax breaks. The Washington delegation, led by Sens. Maria Cantwell and Patty Murray, have had to wage a continual battle to keep the deduction in place.

Rather than make the deduction permanent, Congress would force supporters to repetitively justify it.

To see the unfairness, consider this comparison: The sales-tax deduction costs the U.S. Treasury about $16 billion a year. The income-tax deduction hits the Treasury for about $240 billion annually, but the 42 states with an income tax never have to make the case for it. It’s an automatic yes.

According to Cantwell’s office, 25 percent of Washingtonians, or about 900,000 tax filers, take the deduction. The average savings is about $600.

To make the tax code fair to residents of every state, Congress had the option of ending the income-tax deduction for filers in 42 states. But the idea of raising taxes on that many people was never seriously considered. If the House and Senate pass this tax bill, which is expected, the threat of raising taxes on people in eight states will be removed.

While a victory for fairness on this particular issue, the change was wrapped in a tax package groaning with permanent tax breaks that will cost $560 billion over the first 10 years. This wheeling and dealing is one reason the federal government runs a big deficit.

The good news is that the sales-tax deduction will no longer be a chit in that game.

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