A bipartisan group of House lawmakers are urging the House Way and Means Committee to approve legislation that would extend the federal tax deduction for state and local taxes as part of any tax extenders package considered during the upcoming lame-duck session of Congress. In a letter to Chairman Dave Camp, R-Mich., and ranking member Sander Levin, D-Mich., lawmakers from eight states urged the tax committee to adopt a measure that would extend the deduction, which expired on December 31, 2011. Without the deduction, taxpayers living in states without income taxes face higher federal taxes burdens, Rep. Kevin Brady, R-Tex., and Rep. Jim McDermott, D-Wash., said in the letter. “The sales tax deduction saves taxpayers in our states millions of dollars per year and is a vital component of our states’ economies, spurring growth and creating jobs,” the letter reads.
According to a September 2012 report from the Congressional Research Service on state and local taxes, repealing their federal deductibility would indirectly affect fiscal decisions and lower state and local public spending by an undetermined amount. The CRS report, authored by Steven Maguire, a specialist in public finance, notes that the sales tax deduction was extended through the 2009 tax year by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343 ) and through the 2011 tax year by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312 ). Repealing the deduction for state and local taxes would shift the federal tax burden away from low-tax states to high-tax states, according to the CRS report. Maintaining the current deductibility would continue the indirect federal subsidy for state and local spending, the report states.
By Stephen K. Cooper, CCH News Staff
Letter to Ways and Means Chairman Camp and Ranking Member Levin