- The Washington Times - Friday, June 4, 2004

ASSOCIATED PRESS

People could deduct either state sales or income taxes from their federal income tax under wide-ranging legislation overhauling corporate levies that House Republicans introduced yesterday.

The core of the $34 billion, 10-year measure is a revamping of corporate tax laws in an effort to end the tariffs that European countries have slapped on U.S. goods in a trade dispute.

But in a hunt for votes by the bill’s author, House Ways and Means Committee Chairman Bill Thomas, California Republican, the measure mushroomed into an array of legislative prizes. Included was everything from a $10 billion bailout for tobacco farmers to tax breaks for producers of bows and arrows, sonar fishing gear and tackle boxes.

Taxpayers currently may deduct state income taxes from their federal taxes, but not state sales taxes. But for 2004 and 2005 — at a cost to the U.S. Treasury of $3.6 billion — the bill would let taxpayers deduct whichever local levy is higher.

While that could help residents everywhere, it would be most beneficial in Florida, Nevada, South Dakota, Texas, Washington and Wyoming, which have sales taxes but no income taxes. Tennesseans pay a sales tax but owe state income taxes only on dividend and interest income.

House Majority Leader Tom DeLay, Texas Republican, was a driving force in inserting the sales tax provision into the bill. Mr. Thomas is hoping the language will attract votes from lawmakers of both parties from those states.

“This bill is an opportunity to pile on the momentum for economic growth, and I am proud to support it,” Mr. DeLay said.

Rep. Kevin Brady, Texas Republican, who has pushed for deductibility of state sales taxes for years, said the provision would save Texas taxpayers $921 million.

Not to be outdone, Rep. Martin Frost, Texas Democrat, who faces a tough re-election battle, said he supported the sales tax deduction and accused Mr. DeLay of dragging his feet.

“I am glad the majority leader has finally decided to follow the will of the people,” he said.

The House Ways and Means Committee plans to vote on the legislation next week, with debate by the full House a week later.

The Senate approved a $170 billion version of the bill last month, but it lacked the provision on state sales taxes.

Both bills would repeal a tax break on U.S. exports that the World Trade Organization ruled was an illegal trade subsidy. In response, the European Union imposed gradually rising tariffs — which hit 8 percent Tuesday — on some U.S. goods.

To replace the repealed tax provisions, the House bill would permanently reduce the corporate tax rate from its current 35 percent to 32 percent for manufacturers and some small corporations.

In a break for companies doing business overseas, many businesses could bring home the income they earn abroad and pay only 5.25 percent in taxes for one year. There were other international tax provisions reducing levies on U.S. companies that do business in other countries.

Mr. Thomas’ bill bids for support from small businesses and farmers with several breaks for them, including exempting broad-based stock options from payroll taxes.

Those groups also would get some relief from the alternative minimum tax. Bonus depreciation provisions were included for some aircraft manufacturers.

Several expiring tax provisions would be extended through 2005, including the research and development tax credit. Federally subsidized New York City Liberty Bonds, aimed at helping to rebuild the city after the September 11 terrorist attack, would be extended through 2009. The measure would also extend the subsidy on ethanol through 2010.

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