09.30.04

Cantwell Urges Passage of Job Stimulus Bill That Includes Tax Cut for Washingtonians

Sen. Maria Cantwell says state sales tax deductiondelivers tax fairness for Washington taxpayers

WASHINGTON, D.C. – U.S. Senator Maria Cantwell (D-WA) today worked to ensure that Washington state taxpayers get a tax cut by calling on House and Senate negotiators to swiftly come to terms on a job stimulus bill that reinstates the state sales tax deduction, which was eliminated in 1986. The provision would allow Washington state taxpayers to deduct state and local sales taxes from their federal income taxes, resulting in a tax cut for as much as $575 per year.

"This legislation is simply a matter of fairness," Cantwell said. "Congress needs to act to help Washington state taxpayers who are unfairly stuck with more than their fair share of federal taxes."

Today, Cantwell sent a letter to key Congressional leaders on the conference committee that will reconcile differences between the House and Senate versions of the larger bill, imploring them to include Cantwell's proposal for sales tax deduction in the final version of the Foreign Sales Corporation/ Extraterritorial Income Exclusion (FSC/ETI) bill.

Cantwell is the lead Senate Democratic sponsor of the sales tax deduction. She authored the legislation with Senator Kay Bailey Hutchsion (R-TX). Washington state Representative Brian Baird (D-WA) is the leader in the House on the issue.

Currently, in most other states, taxpayers are allowed to deduct state income tax from their income that is taxed by the federal government. However, residents of states that have no state income tax but have a higher sales tax have not been allowed a sales tax deduction since changes to the tax code were made in 1986. The change affects seven states, including Washington.

Cantwell's legislation, the Sales Tax Equity Act (S. 467), would give Washington state residents an average tax cut of $519 to $575. The state Department of Revenue estimates that residents would save a total of $421 million per year, giving the state's economy a substantial boost.

"This provision is vital to eliminate a bias against the seven states that do not have a state or local income tax but, rather, rely on a sales tax for state revenues," Cantwell wrote. "My home state of Washington is one such state."

As of now, the tax cut is only in one version of the FSC/ETI bill, and the tax cut would only apply through 2005. Cantwell wants the tax cut to be included in the final version of the bill, and will continue to work to make the tax cut permanent.

On September 9, Cantwell attended a bipartisan rally with more than 25 senators and representatives from 7 states, calling on Congress to enact sales tax deduction legislation.

Cantwell's letter was sent this afternoon to Sens. Charles Grassley (R-IA) and Max Baucus (D-MT), and Reps. Bill Thomas (R-CA) and Charles Rangel (D-NY).

The text of Cantwell's letter follows below:

September 30, 2004

The Honorable Charles E. Grassley Chairman Committee on Finance U.S. States Senate The Honorable Bill Thomas Chairman Committee on Ways & Means U.S. House of Representatives The Honorable Max Baucus Ranking Member Committee on Finance U.S. States Senate The Honorable Charles Rangel Ranking Member Committee on Ways & Means U.S. House of Representatives

Dear Chairmen and Ranking Members:

I am writing to urge the swift reconciliation and passage of S. 1637 and H.R. 4520 legislation and the preservation of the provision in the house bill allowing for the deduction of state and local general sales taxes in lieu of state and local income taxes. This provision is vital to eliminate a bias against seven states that do not have a state or local income tax but, rather, rely on a sales tax for state revenues. My home state of Washington is one such state.

I have been a strong supporter of legislative efforts to permanently give taxpayers the option of deducting their state and local sales taxes in lieu of state and local income taxes on their federal income tax return. As such, I am a co-sponsor, together with Senator Hutchison of Texas, of the State Sales and Income Tax Deduction Fairness Act. While I will continue to push for permanency, we do have an opportunity before us in H.R. 4520 that will give residents who itemize their tax returns in seven states the ability to take a deduction for the state and local sales taxes for a two-year period. If we achieve two years, I am convinced we can ultimately achieve permanency and see to it that my constituents' rights to deduct sales taxes are fully restored to where they were for decades prior to the passage of the Tax Reform Act of 1986. Permanency is not only the fair thing to do; it is the right thing to do.

Approximately 940,000 Washingtonians itemized their tax returns in 2003; Senators Alexander and Frist report that some 600,000 Tennesseans itemized their returns. For these individuals, making state sales taxes deductible amounts to an average savings of $519 to $575 for my constituents and some $470 for residents of Tennessee. In Texas, a family of four could receive a tax deduction totaling more than $900. These are true savings for families in a handful of states who, by virtue of state tax policies, cannot otherwise make federal deductions that families in the majority of states can make which is patently wrong.

Certainly, there are more reasons to pass the underlying foreign sales corporations/extra-territorial income ( FSC/ETI) legislation than the sales tax deduction issue alone. Bringing the United States into compliance with the World Trade Organization ruling that, subsequently, set the stage for European Union sanctions against U.S. products is vital; but there are a number of provisions between the House- and Senate-passed bills (H.R. 4520 and S. 1637, respectively) that are of equal importance for tax equity within the United States, as well.

I am heartened that the House moved forward in naming conferees on the FSC/ETI legislation currently before Congress and that the conference committee has already convened; and with the end of this 108 th Congress drawing near, time is of the essence that we pass this legislation and send it to the President for his signature.

Thank you for your work and for coming together quickly in an effort to reconcile H.R. 4520 and S. 1637. It is of the utmost importance the Congress pass a FSC/ETI bill, and that the conference language include a deduction for state and local general sales taxes in lieu of state and local income taxes.

Sincerely,

Maria Cantwell U.S. Senator