| 3.23.22

Should the State and Local Sales Tax Deductions be Extended Forever? (H.R. 622)

Do you support or oppose this bill?

What is H.R. 622?

(Updated July 19, 2017)

This bill would permanently extend the state and local sales tax deduction, so that those who choose to itemize their tax returns can deduct the state and local sales tax burden from their tax bill. Taxpayers are able to choose to either deduct income taxes levied by state or local governments, or their state and local sales taxes from their federal tax bill.

Currently, this deduction wouldn’t be available for taxpayers during the 2015 tax year, as it expired at the end of 2014. It was last extended in 2004.

Argument in favor

This deduction helps taxpayers who live in states or localities that don’t have an income tax and use sales taxes as their primary way of obtaining revenue. State and local income tax deductions leave those taxpayers out of luck.

Argument opposed

The federal government needs this tax revenue. If taxpayers don’t like it, they should vote to change their state government tax laws so they can benefit from that deduction, or they should move.

Impact

Taxpayers who would deduct their state and local sales taxes, the IRS.

Cost of H.R. 622

The CBO estimated that permanently extending the state and local sales tax deduction for those who choose to deduct sales taxes instead of state and local income taxes would increase deficits by about $42 billion over the 2015-2025 period, or about $3.8 billion annually.

Additional Info

Of Note:

There are seven states that have no personal income tax and generate most of their revenue through sales taxes — Alaska (which has no sales tax either), Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

In addition, both Tennessee and New Hampshire (states that also don’t have a sales tax) have no tax on wage income, but do tax investment income from interest and dividends.

In-Depth:

An identical version of this bill was introduced in the Senate in January 2013, but it failed to progress out of committee and receive a vote from the entire Senate.

Congress extended several tax deductions for the 2014 tax year in December 2014, but did not extend them all beyond the end of 2014.