GOP proposal could generate tax increases
WASHINGTON — Tennesseans would no longer be able to deduct state and local sales taxes on their federal returns under a tax-reform plan pushed by House Republicans, raising the possibility of a tax increase for thousands of people across the state.
Since 2004, taxpayers have had the option of taking an itemized deduction for either state and local income taxes or sales taxes on their federal returns.
Tennesseans in Congress have fought for years to keep the sales tax deduction, arguing it is a matter of fairness since residents of other states can deduct their state income taxes. Tennessee doesn’t have a state income tax.
But the tax bill released Thursday eliminates the deduction for state and local income and sales taxes.
Rep. Diane Black, a Gallatin Republican and chairwoman of the House Budget Committee, said she has no problem with eliminating the sales tax deduction, even though she has argued in the past it should be made permanent.
Until 2015, the deduction was renewed by Congress on an annual basis.
“The sales tax deduction is not a loophole for the wealthy and well-connected,” Black wrote in a column published in The Tennessean on April 22, 2015. “It is a matter of basic fairness and is a critical savings tool that middleclass families in our state use year in and year out.”
In the same column, Black chastised then-President Barack Obama for threatening to veto a bill making the sales tax deduction permanent. “President Obama gets it wrong on the sales tax deduction,” she wrote.
Black, who is running for the GOP nomination for Tennessee governor next year, said she has no issue with the Republican plan eliminating the sales tax deduction because it does away with the income tax deduction as well.
“I really felt it was a fairness issue because we didn’t have an income tax,” she said. Now, “people [in other states] are not going to be able to deduct their income tax.”
Most Tennesseans don’t take the deduction anyway, she said.
According to the IRS, a total of 2,970,180 federal tax returns were filed by Tennesseans for 2015. Of that total, 453,650 returns, or about 15 percent, included a deduction for sales tax. The total amount deducted was $1.12 billion for an average of $2,469 per return.
Black’s gubernatorial campaign said Friday any tax increase caused by the loss of the sales tax deduction would be offset in other ways under the GOP plan.
“Eliminating all state and local tax deductions will end the practice of taxpayers in low-tax states like Tennessee subsidizing taxpayers in hightax states like New York and California and create parity for everyone,” campaign spokesman Chris Hartline said.
“By doubling the standard deduction, lowering rates, increasing the child tax credit and adding a $300 credit for each parent, middle class families come out on top,” he said. “On average, a middle-class family will see a reduction in their tax burden of almost $1,200.”
Other Tennesseans in Congress also have pushed for the sales tax deduction in the past.
“I came to Congress with the goal of restoring the ability to deduct state and local sales taxes Tennesseans pay each year from our federal income tax filing,” Rep. Marsha Blackburn, R-Brentwood, said in a 2015 news release announcing an upcoming House vote that would make the deduction permanent.
Blackburn said Friday she is working with Rep. Kevin Brady, the Texas Republican who is chairman of the House Ways and Means Committee, to retain the sales tax deduction and another provision that makes songwriters eligible for the prevailing flat capital gains business tax rate when they sell a catalogue. Right now, they must pay income and selfemployment taxes that could amount to 40 percent of their income from the sale.
Blackburn is running for the U.S. Senate next year.
Sens. Lamar Alexander and Bob Corker, both Republicans, signed onto legislation in 2007 to make the sales tax deduction permanent.
“Making this deduction permanent makes good economic sense and is the fair thing to do,” Alexander said in a news release at the time.
In the same release, Corker called the bill “a commonsense piece of legislation that will provide tax fairness for Tennesseans.”
Neither Alexander nor Corker addressed the sales tax deduction in news releases their offices issued Thursday about the House GOP tax plan. Their aides did not respond to requests for information on whether they would support the elimination of the sales tax deduction.
Rep. Steve Cohen, D-Memphis, blasted the GOP for proposing to eliminate the deduction.
“We worked hard to get sales taxes deductible,” Cohen said. “The GOP plan eliminating the deductibility of sales taxes would take money out of Tennessee. If you can’t deduct it, it goes to Washington.”