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Class warfare or not, treat Florida like other states

By HOWARD TROXLER
Published June 1, 2006

Here was a little news item from a few days ago that I was surprised didn't get more reaction:

WASHINGTON - Taxpayers in eight states without an income tax could soon lose the ability to deduct state sales tax from their federal income tax returns.

A $70-billion tax-cut bill on its way to the president's desk removes a planned extension of the two-year program, which has saved typical taxpayers about $500 a year. The deduction expired at the end of last year.

The affected states are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.

Holy cow!

When Congress gave Florida and the other states this deduction back in 2004, it supposedly was worth $300 a year (not $500) for the average Florida household, or $730-million statewide.

The idea was sold as a matter of basic fairness. Folks in states with a state income tax can deduct it from their federal tax returns.

But folks who live in states like Florida, which instead uses a sales tax as its main source of money, couldn't do the same thing.

So it passed. We got the deduction for 2004 and 2005. But for whatever reason, the deduction was created to expire on Jan. 1, 2006. It did, and that is where matters stand today.

When I read this news, I harrumphed: "It figures! They made sure to cut rich-guy stuff like taxes on capital gains, but not to renew a break for a tax that everybody pays every day!''

On Wednesday I talked to staffers for both of Florida's U.S. senators, Bill Nelson, a Democrat, and Mel Martinez, a Republican. Both were keenly aware of the issue.

The current plan is to take up this deduction in another tax bill soon. The idea isn't dead. It's just that the Senate hasn't gotten to it yet.

And since the leader of the Republican majority in the U.S. Senate, Bill Frist, comes from Tennessee, another state in the same fix as Florida, you would think it would pass.

But it hasn't passed yet. Nothing is certain until it does. Until then, Florida taxpayers don't know the rules for the current tax year, and the records they should be keeping right now.

Certainly, I would hope that politics had nothing to do with what happens. Certainly, nobody is thinking anything like, "You know, this Bill Nelson guy is up for re-election, so why should we help him?"

nnn

Did you catch my use of the sneering adjective "rich-guy"? In political lingo that's known as class warfare, pitting the interests of one income group against another.

Much to my chagrin, in researching the sales tax issue, I found myself on the receiving end. It turns out that being in favor of a sales tax deduction also means that you support a tax cut for "the rich."

Here's why. Only about 3 in 10 Americans use itemized deductions in the first place. The folks who take deductions tend to be the folks with the most money.

So saying that the "average" Florida household would save $300 a year is misleading. Most people file a short form and would save nothing. A few would save more.

To be precise, the IRS's table for Florida's deduction last year ranged from $192, at the lowest end of the income scale with the fewest possible exemptions, up to $2,326 at the highest income and the most exemptions.

"The proposed sales tax deduction,'' notes a Washington outfit called the Center on Budget and Policy Priorities, "would primarily benefit higher-income taxpayers rather than help the lower-income taxpayers who most need relief from the burden of the tax."

On the other hand, as my conservative friends like to lecture me, better-off folks get the biggest share of tax cuts because they paid more taxes in the first place.

So I'm going to sidestep the class warfare issue and stick with basic fairness. The fact is, the IRS allows the residents of most states to deduct the cost of supporting their state government from their federal taxes. The policy ought to be to allow it in all states - or none.

[Last modified June 1, 2006, 04:33:47]