U.S. House budget proposal doesn't include extension on federal sales tax deduction

Associated Press • Mar 30, 2007 at 11:36 AM

NASHVILLE - The U.S. House budget resolution passed earlier this week does not include an extension on the federal sales tax reduction, which has saved Tennesseans more than $200 million a year on their taxes.

The deduction allows people in states without an income tax to deduct what they spend in sales tax on their federal tax returns.

About one-fifth of Tennesseans, or 1.2 million people, use the deduction on their returns each year, according to the Internal Revenue Service. The average reduction in federal taxes owed was $400 on 2004 returns.

Tennessee's five Democratic congressmen voted for the $2.9 trillion budget resolution. Republicans Marsha Blackburn, David Davis and Zach Wamp voted against it, and Republican Rep. John Duncan did not vote.

Blackburn said not extending the tax cuts would create a $392.5 billion tax hike over the next five years.

"Baseball season is right around the corner, and the ‘Hold Onto Your Wallet Congress' decided to go for a home run right out of the gate," Blackburn said in a statement.

The tax cuts also included reductions in income and estate taxes. Without them, the average Tennessee taxpayer would pay an additional $2,600 per year, Blackburn said.

U.S. Sen. Lamar Alexander, R-Tenn., successfully amended the Senate budget resolution that passed last week to include a permanent tax extension. Debate on the two budget resolutions is expected to go on for months.

Democratic Rep. Jim Cooper had offered his own House budget proposal that included a permanent sales tax deduction, but a House committee rejected it.

"When you are a body with 435 people, you usually don't get your first choice," Cooper told the Washington bureau of The Tennessean.

Cooper was the only Democrat who voted for a Republican alternative that would have made the cuts, passed under a Republican-controlled Congress, permanent and would have trimmed more spending, including $279 billion over five years from federal programs such as Medicare and Medicaid. The proposal failed 160-268, with 40 Republicans voting against it.

The House resolution includes language that would support an extension of the tax cuts if a way is found to pay for the loss of tax revenue caused by the deduction.

Democratic Reps. Lincoln Davis and John Tanner, who, with Cooper, are members of the fiscally conservative Blue Dog Democrats group, said they voted for the budget resolution because it supports the Pay-As-You-Go or PAYGO concept.

"For the first time in several years the House has passed a budget with responsible spending reforms, such as PAYGO, in place," Davis said in a statement.

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