Senate Floor Speech
Senator Kay Bailey Hutchison
February 27, 2003 -- Page: S2924

MRS. HUTCHISON. Mr. President, I am pleased to introduce a bill to correct an injustice in the tax code that harms citizens in every state of this great Nation.

State and local governments have various alternatives for raising revenue. Some levy income taxes, some use sales taxes, and others use a combination of the two. The citizens who pay State and local income taxes are able to offset some of what they pay by receiving a deduction on their Federal taxes. Before 1986, taxpayers also had the ability to deduct their sales taxes.

The philosophy behind these deductions is simple: people should not have to pay taxes on their taxes. The money that people must give to one level of government should not also be taxed by another level of government.

Unfortunately, these common sense deductions have slowly been eroded over the years. First, the deduction for State and local sales tax was eliminated in the 1986 tax reform legislation. Second, the alternative minimum tax has reduced the benefit of the income tax deduction for many.

The elimination of the sales tax deduction discriminates against those living in states, such as my home State of Texas, with no income taxes. It is important to remember the lack of an income tax does not mean citizens in these States do not pay State taxes; revenues are simply collected differently.

It is unfair to give citizens from some States a deduction for the revenue they provide their State and local governments, while not doing the same for citizens from other States. Federal tax law should not treat people differently on the basis of State residence and differing tax collection methods.

This discrepancy has a significant impact on Texas. According to the Texas Comptroller, if taxpayers could deduct their sales taxes, more than $700 million would stay in the hands of Texans. This could lead to the creation of more than 16,000 new jobs and add almost $900 million in economic activity. The impact of this growth would be particularly beneficial during this period when many States are facing record-breaking deficits. At the same time, such a tax change would cost the Federal Government less than one percent of what the current State and local income tax deduction costs.

For those in states with income taxes, their tax deduction benefit has been diminished by the alternative minimum tax, AMT. People can deduct their state and local income taxes when calculating their regular taxes, but not when determining the AMT. The difference often is the reason people must pay the higher alternative tax.

In fact, state and local taxes account for 54 percent of the difference between the AMT and the regular tax calculation. This particularly hurts the 60 percent of AMT payers who are from states with higher income tax rates. Eliminating this discrepancy would go a long way toward reducing the number of people affected by the AMT.

The legislation I am offering today will fix these problems. First, it will provide all taxpayers with the option of deducting State and local sales taxes, instead of income taxes, when calculating their Federal tax. This will end the discrimination suffered by my fellow Texans and citizens of other states who do not have the option of an income tax deduction. It will also allow people from states with both a sales and an income tax to choose the most advantageous deduction.

My bill will also provide for a State and local income and sales tax deduction in the AMT. This is an important step in reducing the ballooning growth of the AMT, which will impact almost a third of all taxpayers by 2010.

The legislation I am introducing today is about reestablishing equity to the tax code and defending the important principle of eliminating taxes on taxes. I hope my fellow Senators will support this effort.