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Give Nevadans a Break with IRS Sales Tax Exemption

December 1, 2014 by Thomas Mitchell

If the lame duck session of Congress does nothing else, it must pass an extension of the federal income tax deduction for state and local sales taxes.

Currently state and local income taxes are deductible but the sales tax deduction has expired. Seven states have no state income taxes to deduct, leaving the sales tax as the main comparable deduction. And time is running out.

In 2012 the average Nevada tax filer was able to deduct $332 from federal income taxes, according a Pew Charitable Trusts analysis of Internal Revenue Service data.

Without an extension, many Nevadans are basically facing a tax hike come April 15.

We don?t call on Congress to make the sales tax deduction permanent, but merely to fix it now in the name of fairness one more time, then in the Republican-controlled Congress in 2015 there should be real tax reform.

The current hodge-podge of tax deductions and exemptions and breaks and dodges is entirely unfair and inequitable.

The residents of high tax states send less money to Washington per dollar earned than the residents of states with lower taxes. For example, Illinois recently raised its state income tax rate by 2 percentage-points, but since that was deductible from federal income tax, Illinois basically sent the bill to the other 49 states.

Instead of permanently keeping the sales tax deduction, our representatives would better serve their constituents by introducing a bill eliminating the deduction for all state and local taxes ? yes, including property taxes ? while lowering the federal income tax rate for everyone, including those who don?t qualify for itemized deductions.

Currently, tax filers can choose either the standard deduction or may itemize deductions for certain expenses, including some taxes. The American Jobs Creation Act of 2004 allowed taxpayers who itemize to deduct state and local sales taxes or state and local income taxes. The American Taxpayer Relief Act of 2012 ended the sales tax deduction at the end of 2013.

The Congressional Budget Office has stated, ?The deduction for state and local taxes is effectively a federal subsidy to state and local governments; that means the federal government essentially pays a share of people?s state and local taxes. Therefore, the deduction indirectly finances spending by those governments at the expense of other uses of federal revenues.?

In other words, the CBO says, state and local tax deductions largely benefit wealthier taxpayers who can itemize and live in states with high local tax rates.

A quick fix to make sales taxes deductible should be a priority for our Washington delegation. ? TM

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Filed Under: Opinion Tagged With: tax

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