Bill would allow sales-tax deduction

By Alan Fram
The Associated Press

WASHINGTON — People could deduct either state sales or income taxes from their federal income tax for two years under wide-ranging legislation overhauling corporate levies that House Republicans introduced yesterday.

The core of the $34 billion, 10-year measure is a revamping of corporate tax laws in an effort to end tariffs European countries have slapped on U.S. goods in a trade dispute.

But in a hunt for votes by the bill's author, House Ways and Means Committee Chairman Bill Thomas, R-Calif., the measure mushroomed into an array of legislative prizes, including a $10 billion bailout for tobacco farmers.

People currently can deduct state income taxes, but not sales taxes, from their federal taxes. But the bill — at a cost to the Treasury of $3.6 billion — would let taxpayers deduct whichever local levy is higher in 2004 and 2005.

While that could help residents everywhere, it would be most beneficial in Washington and five other states — Florida, Nevada, South Dakota, Texas and Wyoming. All have sales taxes but no income taxes. Alaskans pay no income tax, but not all cities collect a sales tax; Tennesseans pay a sales tax but only owe state income taxes on the dividends and interest they earn.

Taxpayers would use figures from an Internal Revenue Service table of average sales-tax deductions or provide actual sales-tax receipts.

Thomas is hoping the language will attract votes from lawmakers of both parties from those states.

The issue was the subject of hard feelings among Washington state legislators last month. Rep. George Nethercutt, R-Wash., announced May 18 that he had secured a promise from House GOP leaders to include a three-year sales-tax deduction in the larger tax bill.

Angered that Nethercutt gave no credit to Democratic colleague Brian Baird, who has made the issue a priority for years, the state's six Democratic representatives and two senators wrote a letter supporting the idea, without naming Nethercutt.

The Ways and Means panel plans to vote on the legislation next week, with debate by the full House a week later.

The Senate approved a $170 billion version of the bill last month. It lacked the provision on state sales taxes.


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