(Bloomberg) The U.S. House of Representatives voted to let taxpayers deduct state sales taxes on their federal returns, a victory for residents of Texas, Florida and other states that lack an income tax.
The 272-152 vote would reinstate a tax break that expired at the end of 2014 and make it a permanent feature of U.S. tax law. The bill would save taxpayers—and cost the federal government—$42.4 billion over the next decade.
“It’s about fairness and it’s about certainty,” said Representative Dave Reichert, a Republican from Washington state.
Seven states lack an income tax: Texas, Florida, Washington, Alaska, South Dakota, Nevada and Wyoming.
In addition, Tennessee and New Hampshire don’t tax wages yet tax other types of income, such as interest and dividends.
Residents of Washington, Texas and Florida use the sales-tax deduction at a rate more than twice the national average, according to data from the Pew Charitable Trusts.
The issue is a priority for lawmakers from those states who say it’s unfair that state income taxes are deductible under permanent law and sales taxes aren’t. There are 60 Republican House lawmakers from the nine states, or 25 percent of the party members in the chamber.
There were 34 Democrats who voted for the bill, and 24 of those represent states without income taxes. Just one Republican voted against the measure.
Like other Republican attempts to extend lapsed tax breaks, the measure isn’t likely to become law. President Barack Obama has threatened to veto the bill because it lacks offsets to prevent the federal budget deficit from widening.
Democrats have voted repeatedly for short-term extensions of the break.
“We need to provide certainty to taxpayers in affected states that the sales tax deduction will be available to them this year,” said Representative Danny Davis, an Illinois Democrat. “But then we need to focus on comprehensive reform.”
Under the bill, taxpayers could deduct state and local sales taxes instead of income taxes. They could base the amount of the deduction either on actual purchases or use a government formula.
“We ought not force states into income taxes who believe sales tax is the right way to go,” said Representative Kevin Brady, a Texas Republican.
Republicans backed the bill even though they have repeatedly proposed broader changes that would prevent taxpayers from deducting state and local taxes. The proposals would use the proceeds to reduce federal income tax rates.
The deduction for state and local taxes would have been repealed in a draft tax revamp proposed last year by then- Representative Dave Camp of Michigan, the former chairman of the House Ways and Means Committee.
In a 2014 interview with talk radio host Hugh Hewitt, Republican Paul Ryan of Wisconsin, now the Ways and Means chairman, suggested that the deduction effectively subsidizes profligate state governments.
“Go complain to your governor or your state representative, but don’t make people from states that have got their fiscal house in order pay for the states that don’t,” he said then. “Why should Wisconsin pay for Illinois?”
The bill is H.R. 622.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access