Nevada’s Sen. Dean Heller is pushing a bill that would make permanent the federal income tax deductions for state and local sales taxes.
Currently the state and local incomes taxes are deductible but sales taxes have been added as deductibles a year at a time, making it difficult to plan ahead, as reported in this week’s newspaper column, available online at The Ely Times and the Elko Daily Free Press. Heller argued his bill would help level an uneven playing field by ensuring states like Nevada are afforded the same treatment in the federal tax code as states with an income tax. Nevada is one of nine states with no state income tax.
The bill addresses a very real problem, but with an inadequate solution.
Seven states claim 90 percent of the deductions for state and local taxes — income, sales, property, etc. They are New York, New Jersey, California, Pennsylvania, Maryland, Illinois and Massachusetts, according to the Tax Policy Center. Because there is no cap on these deductions most of the tax savings goes to the highest wage earners.
Using 2010 statistical data from the IRS, I found Californians who filed for state and local income tax deductions claimed deductions of $10,700 per return, and almost half of those returns reported earnings in excess of $100,000. Nevadans who filed for the state and local sales tax deduction claimed only $1,430 per return.
Instead of permanently keeping the sales tax deduction, Heller would better serve his constituents by introducing a bill eliminating the deduction for all state and local taxes while lowering the federal income tax rate a commensurate point or two for everyone, including those who don’t qualify for itemized deductions. That would be fair — perhaps, next to impossible to pass, but fair.