An unpopular Congress has an opportunity to do something exceptionally popular during the coming lame-duck session: extend a number of tax breaks that are important to the bottom line of millions of American families.
Nevadans, especially, have much to lose if one expired deduction isn’t resuscitated by year’s end. The sales tax deduction cuts hundreds of dollars from the typical Nevada federal tax return.
Nevada is among seven states that do not have an income tax and instead rely on sales taxes to fund much of state and local government spending. The once-permanent sales tax deduction was repealed in 1986 and reinstated in 2004, but with a significant change: Instead of allowing Americans to deduct both their state income and sales taxes, as they could through 1986, Congress forced Americans to choose one levy or the other. That deduction has been reauthorized every other year since, allowed to die before being resurrected and extended. Two years ago, “fiscal cliff” legislation extended the sales tax break, but only through Dec. 31, 2013. So as of today, when Nevadans sit down in the spring to file their 2014 returns, they’ll be hit with a tax hike.
It’s ridiculous that Congress has created so much uncertainty with this deduction and others, and that lawmakers are prepared to raise taxes on some Americans but not others. Residents of states with income taxes would retain their deduction, leaving residents of states that have no income tax to bear a disproportionate share of the federal tax burden and subsidize filers in states that have income taxes.
A far better solution would be a major overhaul and simplification of the federal tax code. Republicans clearly want to tackle tax reform once their House and Senate majorities are seated next year. But next year will be too late to extend the sales tax deduction and several other federal breaks that expired last year. Another two-year extension is probably the best outcome Americans can hope for — it would buy Congress time to tackle broader tax changes. Eventually, Congress should make the sales tax deduction permanent or wipe it out altogether — along with the state income tax deduction.
But can Congress even get that much done? Outgoing Senate Majority Leader Harry Reid, D-Nev., might be focused on confirming as many Obama administration appointees as possible before year’s end, including a replacement for Attorney General Eric Holder. He can’t forget about his constituents at home — especially if he plans to seek re-election in 2016.
Sen. Reid and House Speaker John Boehner, R-Ohio, must make an extension of the sales tax deduction a high priority for the lame-duck session.