In checkout lines all across Texas, consumers watch as items are scanned, knowing they will have to pay the price the store charges plus state sales tax on the total. Until recently, the federal government even taxed you on the part of your income you had already used to pay state sales tax, but that changed after a victory in Congress for the people of Texas.
State governments have various options for raising revenue. Some levy income taxes, some use sales taxes and others use a combination of the two. But until Congress passed tax cuts in 2004, Texas was effectively penalized for exercising its independence in choosing not to assess an income tax. (When I was state treasurer, I fought efforts to pass a state income tax in Texas and we won.)
Citizens of other states who pay state income taxes have long been able to offset some of what they pay by deducting their state income tax on their federal tax returns. But those paying only a sales tax, like Texans, could not deduct their state taxes. This law was grossly unfair to Texans, and was costing Texas taxpayers almost $1 billion a year.
So, Texans had their purchases taxed by the state government, and then they were taxed by the federal government on the income they had just used to pay the sales tax. It did not sit well with me to have Texans paying additional taxes on the very money they used to pay their state tax.
All Americans should be treated equally when it comes to deducting their state taxes, whether they pay state income taxes or sales taxes. I worked with fellow Texan, Congressman Kevin Brady, to include this deduction in the tax relief bill of 2004. This deduction can make a difference. A family of four in Texas that itemizes and uses the sales tax deduction saves about $408 a year in federal income taxes. Until last year, Texas taxpayers did not have the ability to deduct their sales taxes. Now they do.
This deduction was set to expire this year, but I am working to change that. I pushed for the inclusion of a two-year state and local sales tax deduction extension in the 2005 tax bill, and I am happy to report to you that the U.S. Senate responded by passing the Tax Relief Extension Act last year. Now we need to get the full Congress to pass the extension so that Texas will continue to have the same tax relief opportunities as the rest of the nation.
This extension is a good start, but I am far from finished pursuing fairness for Texans. This deduction must be made permanent, and I will continue to fight for this in the Senate.
Sales tax deductibility is not only an issue of fundamental tax fairness, but is also an economic stimulus that creates jobs and improves the lives of the 55 million Americans living in the seven states which do not levy income taxes, but do levy sales taxes (Alaska, Florida, Nevada, South Dakota, Washington and Wyoming).
Texans have the right to choose their own method of assessing state taxes. Taxing on income tends to discourage people from trying to earn more because the government takes more money for each extra dollar earned. On the other hand, collecting money through a sales tax tends to encourage people to save money because you are not taxed on money you do not spend. This, in turn, motivates people to plan for the future, setting money aside for retirement, college and health care expenses.
We do not tell other states to tax our way, and we should not be penalized for not following their way either. When the federal government fails to put our method of taxing on equal footing with other methods, it interferes with our right to govern ourselves as we see fit.
You work hard for your money, and I do not want the federal government reaching into your pockets to take money that it is not entitled to. There are too many taxes already, and double-taxing Texans because we choose not to have a state income tax is unacceptable.