In today's Senate Finance Committee hearing on the FY2013 budget, Sen. Maria Cantwell (D-WA) urged Treasury Secretary Timothy Geithner to advocate for a permanent extension of the state and local sales tax deduction. Cantwell pushed Geithner to work for an extension of the sales tax deduction as a matter of fairness and to provide economic certainty for residents of eight states that rely on the sales tax.
In the hearing, Cantwell asked Geithner, "Do you think states like Washington and Florida and Texas deserve certainty on whether they get to deduct their sales tax from their federal income tax? Do they deserve that certainty now?"
Geithner responded by saying: "I think it would be good for Congress across the board to give not just states but businesses and individuals much more certainty about their tax treatment. That's one example of where certainty is good but there's lots of others too."
Later in the Q&A, Cantwell continued to press the issue, saying, "Well if the administration would just advocate for certainty on this now that would be a huge help."
Geithner responded by saying, "I'm a big fan of certainty."
Cantwell praised the Obama administration's proposed FY2013 budget for supporting key tax credits that have supported job growth in Washington state. Cantwell has been a Senate leader in supporting extension of the New Markets Tax Credit, clean energy tax credits, and the Low-Income Housing Tax Credit.
"The budget has tax provisions in it for the New Markets Tax Credit, and energy tax credit and the Low-Income Housing Tax Credit -- all things that I think are stimulative to the economy and important for economic development," Cantwell said.
The federal income tax deduction for state and local sales taxes is available for 2011 tax returns but its future remains unclear. For 2009, the most recent year of published IRS data, nearly 850,000 Washingtonians took advantage of the deduction and reduced their taxable income by over $1.8 billion. The value of the deduction varies depending on individual filing status and tax rate, but the $1.8 billion in deductions translated into $500 million or more staying in the Washington state economy instead of going to the U.S. Treasury. The deduction benefits taxpayers in Washington state and Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming.
Cantwell, a member of the Senate Finance Committee, has led the effort each year to extend the deduction, and she has consistently introduced legislation to make the deduction permanent. On February 3, 2012, Cantwell, along with Marco Rubio (R-FL), Bill Nelson (D-FL) and 11 other Senators from both parties, urged Senate and Finance Committee leadership to make extending the state and local sales tax deduction a top priority this legislative session. She secured an extension of the sales tax deduction in December 2010 -- which expired at the end of 2011 -- and has consistently argued for a permanent extension to ensure tax fairness and avoid the uncertainty of temporary extensions.
For nearly two decades, Washington taxpayers were penalized because the federal tax code did not allow deduction of state and local sales taxes. That disparity ended in 2004 when Senator Cantwell successfully restored the deduction. For the first time since 1986, taxpayers in Washington and other states that have no state income tax were able to deduct sales taxes from their federal income tax. But the extension was never made permanent, requiring repeated approval by Congress.