[Congressional Record Volume 145, Number 113 (Wednesday, August 4, 1999)]
[Senate]
[Pages S10233-S10234]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. THOMPSON (for himself and Mr. Frist):
  S. 1490. A bill to amend the Internal Revenue Code of 1986 to allow a 
deduction for State and local sales taxes in lieu of State and local 
income taxes; to the Committee on Finance.


                   Deductibility of State Sales Taxes

 Mr. THOMPSON. Mr. President, I rise today to introduce 
legislation that will address an inequity in the tax code that affects 
the citizens of my state and citizens of the other states that do not 
have a state income tax. Tennesseans are discriminated against under 
federal tax laws simply because our state chooses to raise revenue 
primarily through a sales tax instead of an income tax. My bill would 
end this inequity by allowing taxpayers to deduct either their state 
and local sales taxes or their state and local income taxes on their 
federal tax forms, but not both. I am joined today by my colleague from 
Tennessee, Senator Frist.
  Under current law, individuals who itemize their deductions for 
federal tax purposes are only permitted to deduct state and local 
income taxes and property taxes paid. State and local sales

[[Page S10234]]

taxes are not deductible. Therefore, residents of nine states are 
treated differently from residents of states with an income tax. Seven 
states--Texas, Florida, Alaska, Wyoming, Washington, South Dakota and 
Nebraska--have no state income tax. Two states--Tennessee and New 
Hampshire--only impose an income tax on interest and dividends, but not 
wages.
  Prior to 1986, taxpayers were permitted to deduct all of their state 
and local taxes paid (including income, sales and property taxes) when 
computing their federal tax liability. The ability to deduct all state 
and local taxes is based on the principle that levying a tax on a tax 
is unfair.
  In 1986, however, Congress made dramatic changes to the tax code. The 
Tax Reform Act of 1986 significantly reduced federal tax rates on 
individuals. In exchange for these lower rates, Congress broadened the 
base of income that is taxed by eliminating many of the deductions and 
credits that previously existed in the code, including the deduction 
for state and local sales taxes.
  Mr. President, I believe that our federal tax laws should be neutral 
with respect to the treatment of state and local taxes. As I have said, 
that is not the case now. The current tax code is biased in favor of 
states that raise revenue through an income tax. I strongly support 
comprehensive reform of the tax code that will address issues such as 
neutrality, fairness and simplicity. As we work to reform the overall 
tax code, restoring equality in this area should be a part of the 
discussion.
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