By Peninsula Daily News staff
and news services
WASHINGTON — The Senate has passed a last-minute bill extending dozens of temporary tax breaks, including the one that allows Washington state residents to deduct sales taxes on their federal tax returns for another year.
The vote Tuesday night was 76-16.
The bill wIll enable millions of businesses and individuals to claim the tax breaks on their 2014 tax returns. Beyond this year, their fate is uncertain.
The Tax Increase Prevention Act of 2014 was previously passed by the House and now goes to President Obama, who is expected to sign it.
The 54 tax breaks in the bill benefit big corporations and small businesses, as well as struggling homeowners and people who live in states without a state income tax, such as Washington.
“This legislation before us tonight includes making sure that we’re able to deduct the state sales tax from our federal tax obligations,” Sen. Maria Cantwell, D-Mountlake Terrace, said in a statement.
“I hope we’ll be here someday when we can get permanent tax fairness into the code — that this is permanent provision. That we don’t have to come back every year and get the tax fairness our states deserve.”
(Video of Cantwell the floor of the Senate on the tax extension: https://www.youtube.com/watch?v=xKKBhqZFByc )
Washington and eight other states don’t have an income tax and, therefore, taxpayers can’t claim a state income tax deduction on their federal returns, but they have been allowed in recent years to claim a sales tax deduction instead.
Congress let the sales tax deduction expire at the end of 2013, which left its future in doubt.
About 900,000 Washington state taxpayers took advantage of the state sales tax deduction in 2012, reducing their taxable income by $1.9 billion, according to IRS data.
Washington state taxpayers saved an average of $602 with the state sales tax deduction in 2012, according to a Pew Charitable Trusts report.
Congress has turned extending the sales-tax deduction on a year-by-year basis into an end-of-year tradition since it expired in 2004, leaving Washington residents uncertain if the tax break will be back next year.
Cantwell has proposed bills each of the past four years to make it permanent, but not one has passed Congress. Despite bipartisan support for the sales-tax deduction, Congress has been reluctant to extend it for a longer term.
“The politics on this goes way back,” according to the Tacoma News Tribune.
In an editorial earlier this month, the newspaper said:
“A permanent sales tax deduction was repealed in 1986, in part to coerce states — like Washington — that historically preferred them to income taxes.
“Sales taxes weigh more heavily on the poor, the argument went, so federal tax policy should encourage states to adopt more progressive systems.
“That was the theory; whatever its virtues, it didn’t work. Washington never did adopt an income tax and its voters show no inclination to do so now.
“The social logic of coercion has since given way to the political logic of using the deduction from one year to the next as a legislative bargaining chip and as a gift to constituents. Because there is no permanent deduction, our representatives can grandly bestow the temporary one again and again.
“It’s arbitrary and unjust that most Americans know they can write off their state taxes while Washingtonians face perpetual uncertainty. It also doesn’t say much for the effectiveness of our congressional delegation, who could potentially leverage the votes of Texas, Nevada, Florida and three smaller states to secure a permanent deduction.
“This year has brought additional complications. The state deduction had been part of a larger legislative deal that would have made many temporary breaks permanent, but President Obama killed it — mostly for good fiscal reasons — with a veto threat.
“What we’re left with is yet another temporary package that will apparently expire in weeks and set the stage for another battle next December.
“This is a spectacularly poor way to do tax policy. And it is spectacularly unfair to Washington citizens, who are being denied a tax assurance that people in [41] other states take for granted.”
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By STEPHEN OHLEMACHER, Associated Press
WASHINGTON (AP) — Banks, retailers, commuters and teachers will keep their temporary tax breaks for another year after Congress gave final approval Tuesday to a massive tax package affecting millions of businesses and individuals.
The last-minute bill would extend the expired tax breaks through the end of the year, enabling taxpayers to claim them on their 2014 tax returns. Beyond this year, their fate will once again be uncertain.
The package now goes to President Barack Obama, who is expected to sign it. It would add nearly $42 billion to the budget deficit over the next decade, according to congressional estimates.
The 54 tax breaks benefit big corporations and small businesses, as well as struggling homeowners and people who live in states without a state income tax. More narrow provisions include tax breaks for filmmakers, racehorse owners and rum producers in Puerto Rico and the Virgin Islands.
The Senate voted 76-16 to approve the package Tuesday evening as lawmakers rushed to finish their work before heading home for the holidays. The House passed the bill earlier this month.
Lawmakers from both political parties said they were disappointed they were unable to extend the tax breaks beyond this year.
“This package of incentives — which applies only to 2014 — will last two more weeks before families and businesses will be thrown back into the dark about what taxes they owe,” said Sen. Ron Wyden, D-Ore., chairman of the Senate Finance Committee. “This tax bill doesn’t have the shelf life of a carton of eggs.”
Congress routinely extends the package of tax breaks every year or two. But they were allowed to expire in January.
Technically, the bill is a one-year, retroactive extension of the tax breaks, even though it only lasts through the end of the month.
“This bill represents the worst habits in Washington,” said Sen Tom Coburn, R-Okla. “Politicians in a lame duck, end-of-the-year session, passing out goodies to well-connected industries instead of lowering tax rates for all Americans.”
Business groups have complained for years that the patchwork of temporary tax breaks makes it difficult for them to plan. Still, in a letter to senators, the National Association of Manufacturers supported the bill because it would “prevent immediate tax increases on thousands of manufacturers that benefit from these temporary provisions.”
House Republicans and Senate Democrats negotiated to make some of the tax breaks permanent. But talks faltered after the White House threatened to veto an emerging package, saying it too heavily favored big corporations over families.
House Republicans responded by passing a one-year bill, figuring they will have more influence over the package next year, when Republicans take control of the Senate.
“My only hope is that in the new Congress we can make strides toward putting some certainty back in the tax code,” said Sen. Chuck Grassley, R-Iowa.
Among the biggest breaks for businesses are a tax credit for research and development, an exemption that allows financial companies such as banks and investment firms to shield foreign profits from being taxed by the U.S., and several provisions that allow businesses to write off capital investments more quickly.
There is also a generous tax credit for using wind farms and other renewable energy sources to produce electricity.
The biggest tax break for individuals allows people who live in states without an income tax to deduct state and local sales taxes on their federal returns.
Another protects struggling homeowners who get their mortgages reduced from paying income taxes on the amount of debt that was forgiven.
Other provisions benefit commuters who use public transportation and teachers who spend their own money on classroom supplies.
