02.27.03

Sens. Hutchison, Cantwell Introduce Bipartisan Bill to Address Tax Fairness

Legislation Would Allow Deductions on State and Local Sales Taxes

WASHINGTON – U.S. Senators Kay Bailey Hutchison (R-TX) and Maria Cantwell (D-WA) today introduced bipartisan legislation to allow millions of Americans to deduct state and local sales taxes from their federal income taxes. Under current law, residents in seven states without an income tax do not have a deduction option enjoyed by states with income taxes. "A discriminatory federal tax code is fundamentally unfair," Sen. Hutchison said. "Texans deserve tax deduction opportunities just like those available to citizens of other states."

"Our economy has taken a hard hit. Restoring the sales tax deduction puts money back into the pockets of Washington state residents when they need it most," Sen. Cantwell said. "The sales tax deduction levels the playing field by making the federal tax code more fair."

Prior to 1986, taxpayers were permitted to deduct most state and local taxes when computing their federal tax liability. Tax reform, passed in 1986, adversely affected residents of several states, including Texas and Washington, by eliminating deductions on state and local sales taxes but not on state income taxes.

The "State Sales and Income Tax Deduction Fairness Act of 2003," introduced by Senators Hutchison and Cantwell, would give all taxpayers the option of deducting state and local sales taxes, instead of income taxes, when calculating their federal taxes. Deductions would be determined using a table developed by the Secretary of the Treasury, based on income levels and state and local sales tax rates.

The bill would also provide relief from the alternative minimum tax (AMT) by allowing deductions for state and local income and sales taxes in computing the AMT. State and local income taxes are not currently deductible when calculating the AMT, which results in many people having to pay the higher alternative tax. The AMT is expected to impact nearly one third of all taxpayers by 2010.

"This legislation will help boost the economy and create job opportunities by allowing hard-working Texans to keep more of their own money," Sen. Hutchison concluded. "It’s the right thing to do."