May 4 Daily News editorial

Washington state taxpayers who itemize their federal income tax returns received a bit of good news last week. The federal budget resolution approved by the House on Wednesday includes a provision that would allow for the permanent extension of the state sales deduction. The resolution is expected to clear the Senate soon, according to a press release from Congressman Brian Baird’s office.

What’s needed now is the passage of legislation introduced by Baird in January to make this tax break a permanent part of the federal tax code. There’s cause for optimism. The bill, which now is pending before the House Ways and Means Committee, has picked up more than 50 co-sponsors.

Washington’s congressional delegation, led by Baird, fought for more than a decade to restore this state sales tax deduction, which was stripped from the federal tax code 23 years ago. It was restored in 2004, but only temporarily. The deduction has been extended three times since and is now due to expire after the 2009 tax year.

Having to repeatedly go begging for this tax break has been a source of considerable frustration for citizens in Washington and the six other states that have high sales taxes, but not state income taxes. Absent sales tax deductibility, taxpayers in Washington, Nevada, Wyoming, Texas, Tennessee, South Dakota and Florida would be made to shoulder a disproportionate share of the federal tax burden. They cannot deduct the state taxes they pay from their federal tax liability, as citizens in states with income taxes can.

This effort to make the sales tax deduction permanent was helped by the elevation of Nevada Democrat Harry Reid to Senate majority leader in 2006. Reid has authored the Senate’s sales tax deduction measure. It would create a deficit-neutral reserve fund to offset the cost of the deduction in 2010 and beyond, according to maria Recio of McClatchy Newspapers. In any case, this deduction can hardly be viewed as a costly new tax revenue drain; it’s been part of the federal tax code for five years now.

Washingtonians have a significant stake in keeping this tax break. Those who itemize their federal tax deductions save, on average, upwards of $500 by claiming the state sales taxes they’ve paid throughout the year. More compelling are figures compiled by the Economic and Revenue Forecast Council and Congressional Research Service. The council calculates that the deduction supports from 2,000 to 3,000 Washington jobs and that each dollar retained in the state through the deduction results in about 50 cents in economic stimulus. Conversely, the Congressional Research Service estimates that allowing the deduction to expire would cost Washington from $488 million to $541 million annually.

There also is the issue of fairness. As Baird noted in his press release hailing the House budget resolution, “It’s simply unfair that a person in Vancouver would pay more in federal income tax than a person who makes the same amount of money each year, but lives across the river in Portland.”