Taxpayers in Washington could save an average of $500 a year on their federal taxes under a bipartisan deal announced Wednesday by a Senate committee.
The Senate Finance Committee is expected to vote today on a bill that would extend dozens of tax breaks, including the deduction for sales tax for residents of eight states that don't have an income tax.
U.S. Sen. Maria Cantwell, D-Wash., a member of the committee, said the deduction is about fairness because Washington has no income tax and its state and local governments rely on a substantial sales tax.
"Unless the sales tax is made deductible, taxpayers in Washington and other states without an income tax bear a disproportionate share of the federal tax burden," she said.
In 2009, the most recent year for Internal Revenue Service data, nearly 850,000 Washington residents claimed the deduction, reducing their taxes by a total of about $500 million. The deduction also helps residents of Alaska, Florida, Nevada, Tennessee, Texas, South Dakota and Wyoming, which also have no state income tax.
The sales tax deduction first passed in 2004 and has been renewed regularly since, but only on a temporary basis. It expired at the end of 2011; if it isn't renewed this year, it won't be available to taxpayers filling out their forms in 2013.
Cantwell said she is glad to see the two-year extension, but she and her colleagues will "continue fighting for this deduction" until they succeed in making it permanent.
Along with the sales tax deduction, other tax breaks would be extended for small businesses, working families, research and development and renewable energy initiatives. But nearly 25 percent of the current tax breaks will expire, including one for wind energy.
The agreement came after weeks of negotiations. Committee Chairman Max Baucus, D-Mont., said it proves that legislating can still be done if both sides work together.
"We're facing serious challenges with the fiscal cliff at the end of the year, and this win shows we're able to come together to tackle tough problems," he said in a committee news release.
Ranking member Orrin Hatch, R-Utah, said the markup is "a first step toward the ultimate goal of comprehensive tax reform."
The Senate could vote on the bill after it returns from the August recess.