Brady worried about losing family friendly tax relief

WASHINGTON (AP) — Renewing a sales tax deduction available to residents of Texas and six other states could get harder as Democrats try to cut federal government spending, lawmakers said.

Taxpayers in the seven states who itemize can deduct what they paid in state and local sales taxes last year and what they will pay this year on their federal income taxes in 2007 and 2008.

But Congress would have to renew the exemption for taxpayers to be able to deduct sales taxes in 2008 or beyond.

“The cost to extend it is not large, but overall the Democrats have made a pretty hefty amount of campaign promises ... and they are going to have to find a way to pay for it. I’m worried that we’ll lose some very family friendly tax relief like the sales tax deduction to pay for this,” said Rep. Kevin Brady, R-The Woodlands, a member of the tax writing House Ways and Means Committee.

Sen. Patty Murray, a Washington Democrat, acknowledged Tuesday that the sales tax is vulnerable, but said she would fight to make it permanent.

But Austin Democratic Rep. Lloyd Doggett, also a House Ways and Means member, said the sales tax deduction “has in no way been targeted for elimination.”

He disagreed that it has contributed to deficit spending.

“Suggesting that one exemption is jeopardized by long overdue fiscal responsibility is a totally phony argument from those who have been drowning our country in red ink and made us debtors to China and other foreign countries,” according to a statement his spokesman e-mailed this week.

Lawmakers from Texas and other states, unsuccessful in earlier attempts to make the tax deduction permanent, say they will try again this year. Taxpayers in Florida, Nevada, South Dakota, Tennessee, Washington, and Wyoming can take the deduction, which has bipartisan support from lawmakers in both states.

House Democrats last week passed a spending rule, known as pay-as-you-go, that requires tax cuts to have corresponding cuts in government spending or tax increases elsewhere to pay for them.

House Speaker Nancy Pelosi said this week Democrats are not going to start with repealing tax cuts to cut deficit spending, but they are not off the table for people making over half a million a year.

Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, said the House pay-as-you-go rules make it harder to enact any kinds of tax breaks like the sales tax deduction or spending programs.

But because the deduction is not permanent, he said, lawmakers don’t count on the revenue that would be spent on future sales tax deductions.

“If they did something like eliminate the state and local income tax deduction, then they would get rid of the sales tax deduction as well,” Burman said. But because Ways and Means Chairman Charlie Rangel and Pelosi live in high tax states, he doubted those exemptions would disappear.

The Senate has not adopted spending rules like those of the House, but Sen. Kay Bailey Hutchison, R-Texas, said Republicans plan to offer their own pay-as-you-go spending proposal. Sen. John Cornyn, R-Texas, said allowing the deduction to expire would amount to a tax increase and “would not be fair to Texans.”

Hutchison and Sen. Maria Cantwell, D-Wash., have each introduced separate bills to make the sales tax deduction permanent. Brady is a co-sponsor on a similar House bill.

Opponents of the sales tax exemption say it largely benefits higher income taxpayers.

The bills seeking to make the sales tax deduction permanent are S180 by Hutchison; S143 by Cantwell and H.R. 160 by Rep. Brian Baird, D-Wash.