Sales Tax Deductibility
There may be some progress in Congress to make it possible for taxpayers to deduct state sales tax payments on their federal tax returns.

Here's a Dallas Morning News story from two weeks ago. Such a move would both cut Tennesseans' federal taxes and eliminate a major part of the argument of those who favor creation of a state income tax.

Some Democrats appear to be in support of restoring sales tax deductibility, but it only seems that way. What they're really trying to do is make certain that it doesn't happen - or if it does, it results in other taxes being raised.

Florida, Alaska, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming don't have personal income taxes, so taxpayers there - who pay sales taxes - can't deduct their largest state tax payments from their federal income tax the way taxpayers in the other 42 states can.

This week, Florida Sens. Bob Graham and Bill Nelson joined with South Dakota Sens. Tom Daschle and Tim Johnson, all Democrats, in sponsoring a bill to let taxpayers in the eight states deduct sales taxes. Technically, all taxpayers would be given the choice of deducting either sales taxes or personal income taxes, but the practical effect would be limited to states without income tax.

Of course, with the bill crafted that way, senators and representatives in the other 42 states have no incentive to vote for it, since it would make the eight states without income taxes even more attractive to relocating businesses and residents.

The Senate bill sponsored by Graham, Daschle and the others would "cost" Uncle Sam an estimated $27 billion in less revenue over 10 years, but would recoup that money by eliminating a variety of corporate tax deductions and credits. The competing legislation offered by House Republicans would add the sales tax deduction to a pending bill extending the recent child-tax-credit legislation to lower-income families who aren't receiving the child-tax-credit rebate checks because, well, they don't pay enough income taxes to qualify for it.

What is really happening? Simple. Republicans want to make the federal tax code more fair by restoring sales tax deductibility. Democrats don't - they're only proposing the legislation in order to be able to claim they do, while not actually voting for the legislation that would do it. And in the microscopic chance their legislation actually pass, the Democrats will at least be comforted by the knowledge that they've raised other taxes to offset the "lost" revenue.