Congress passes sales-tax deduction

WASHINGTON — The Senate early today joined the House in approving a package that allows Washington residents to deduct state and local sales taxes from their federal income taxes for two more years.

Rep. Brian Baird, D-Vancouver, who championed the popular tax break in the House, said it has been a dramatic ride.

"It's like 'The Perils of Pauline,' trying to save it," he said before the Senate passage.

The deduction expired at the end of last year and wouldn't have been available this next tax season without congressional action.

The measure affects eight states, including Washington and Alaska, that don't levy a personal income tax.

The extension could save Washington families about $500 a year each in federal taxes; the total was about $355 million in 2004.

The sales-tax deduction was included in a complicated piece of legislation containing dozens of other tax measures, a phenomenon in Congress known as a Christmas tree bill because of all the proposals attached to it.

It passed the House 367-45. All members of the Washington delegation voted for the legislation that included the sales-tax deduction. The Senate cleared the bill for President Bush's signature early today by a 79-9 vote.

The landslide votes reflected widespread bipartisan support for extending other tax breaks, including the research-and-development tax credit for businesses, the tax deduction on college tuition, a tax credit for hiring welfare recipients and others facing difficulties finding jobs, and tax credits for alternative-energy producers and purchases of solar energy equipment by homeowners and businesses.

All told, the tax cuts will cost $38 billion over five years.

A measure added to the bill Friday would open 8.3 million acres in the Gulf of Mexico to oil and gas drilling.

Under a complicated procedural pirouette, the tax bill and separate trade legislation that also passed the House on Friday were bundled together and sent to the Senate for a single vote, and the legislation's popularity easily vanquished a handful of GOP opponents. Some Republican budget hawks had bridled at the measure's cost and senators in textile states objected to trade provisions benefiting Haiti.

The Internal Revenue Service had wanted Congress to deal with the sales-tax extension by Oct. 15, to help accountants and the IRS finalize tax guides for the coming year.

The tax break was reinserted in the tax code in 2004 for two years by then-House Majority Leader Tom DeLay, R-Texas, after being removed in 1986.

This year's delay in determining whether the provision will apply in 2006 has affected purchasing decisions, Baird said.

"The end of the year is when people decide to buy a car, or make other major purchases. It could be a difference in thousands of dollars spent," Baird said. "People were telling me they weren't sure when they should buy a car."

The provision permits all taxpayers who itemize the choice of deducting either state income taxes or sales taxes. Seven states don't have state income taxes, and Alaska has neither a state sales tax nor an income tax but has local sales taxes that could be deducted.

Alicia Mundy in The Seattle Times' Washington bureau contributed to this report, along with McClatchy Newspapers and

The Associated Press.