Stam's Transit Gambit

Yesterday in the House Finance Committee, Minority Leader Paul "Skip" Stam tried derailing the Transit Bill H148 by referring to sales tax as an inefficient tax. He claimed that sales tax was not deductible from Federal taxes, as property tax is, and that the effect was to send 15 cents of every dollar in sales tax to the Federal Government. He exchanged words with Rep Deborah Ross, a sponsor of the bill and did not offer an amendment in committee but promised to introduce one on the House floor when the bill is considered. Mr Stam should check with the IRS first.

If you itemize:
According to the Internal Revenue Service Topic 503 - Deductible Taxes:

There are four types of deductible nonbusiness taxes:
  • State, local and foreign income taxes;
  • Real estate taxes;
  • Personal property taxes; and
  • State and local sales taxes.
  • It is a conservative mantra at the local level that sales tax is better than property tax because everybody pays sales tax. Now we are to believe that property tax is better than sales tax because sales tax is supposedly not deductible on Federal tax returns. The various criticisms are intended to erode taxation anywhere for any reason. In this case the reasoning is wrong.

    Generally, sales taxes are not deductible on Schedule A. However, for Tax Years 2005, 2006, 2007, 2008, and 2009 if you file a Form 1040 and itemize deductions on Schedule A, you have the option of claiming either state and local income taxes or state and local sales taxes (you can't claim both). If you saved your receipts throughout the year, you can add up the total amount of sales taxes you actually paid and claim that amount. If you didn't save all your receipts, you can choose to claim a standard amount for state and local sales taxes. Its easy if you use the Sales Tax Deduction Calculator on IRS.gov for either year (refer to Publication 600 and Form 1040 Instructions).

    If you don't itemize:
    For taxpayers using the Standard Deduction, there is an additional property tax deduction. However, the maximum additional deduction is $1,000 for married, filing jointly ($500 for singles). As the average property tax bill in Wake County is about $2,000, an increase would not be deductible. Regardless of the merits of property tax versus sales tax as a funding mechanism for transit or other transportation, the federal deductibility argument is a spurious one.

    Crossposted at Progressive Pulse

    Comments

    Good post, Greg

    I saw this at Progressive Pulse and am glad to see it cross posted.

    I suppose it's too much to ask elected officials like Mr. Stam to actually know what they're talking about when it comes to public policy. And I won't be surprised if tomorrow he'll be saying that his comments were misconstrued and that any criticism is the work of political enemies out get him.

    If he had any integrity, he'd stand up and say, "What I said about taxes was wrong. I apologize."

    Don't hold your breath.

    ____________________________________

    Corporations are people, my friend.

    Stam, Ross, Hackney

    Stam is a sharp lawyer and parliamentarian. Too bad his skills are put to such divisive purposes. I am glad that there are smart, diligent and tenacious people like Joe Hackney and Deborah Ross to intercept curve balls, from both sides of the aisle.

    When did destroying the very foundations of our

    government become acceptable? It wasn't too long ago that people quoted that our country will only be destroyed from within. Now they're thinking up ways of accomplishing it.

    Greg, your math and analysis is all wrong

    Greg, I am sorry to disagree with your math but

    1) An increase in property tax IS deductible for those who itemize. The $1,000 per couple deduction cap is only for those who do NOT itemize their taxes. There is no automatic deductibility for either income tax or sales tax for those who do not itemize.

    2) While it is true that sales taxes are deductible, for most North Carolinians who have enough deductions to actually itemize (to do this you have to have itemized deductions above the standard deduction) the amount they pay in NC income tax is FAR higher than the amount of sales tax they pay. Since they have to choose to itemize either sales tax or income tax, but not both, most will choose the income tax.

    3) The only people in North Carolina who likely pay more sales tax than income tax and actually itemize are those who made a giant purchase this year, like maybe a yacht.

    4) Most taxpayers do not itemize at all, they take the standard deduction, so the entire discussion on both sides may not be relevant.

    ?

    You need to read to read the post again. Then tell me where I'm all wrong.

    I don't dispute what you say about the taxes. Perhaps the last paragraph is confusing as written. It was intended to acknowledge the nominal property tax deduction associated with the standard deduction to those who do not itemize. I will clarify it.

    Telling me my math and analysis is all wrong is a bit over the top.

    Deducing deductibles

    64% of NC filers do not itemize. That's a group for whom sales V. property tax increase deductibility is moot.

    For those who do itemize, a property tax increase would be deductible. I have not disputed that. For this group, sales tax is deductible though, as a practical matter, only to the extent that it exceeds state income tax. (I'm not aware of a local income tax in NC). I have not disputed that either. (There is a marginal benefit to electing to use the sales tax deduction in that state income tax refunds are not taxed when the sales tax deduction is used).

    Sales tax on certain assets or improvements to assets would be considered "deductible" to the extent that they reduce future capital gains. Sales tax is also deductible as part of business expenses. It's safe to say the issue of sales tax deductibility is more complex than it appears.

    The analysis may have been ambiguous, or at least open to interpretation. The math - not sure what you're talking about. In any event, I believe that the deductibility issue is a red herring.

    trying again

    Hi Greg, you say "I don't dispute what you say about the taxes". Your post was entirely about the taxes! Sorry for being harsh in my title.

    asdf

    Your comment was not entirely about taxes.

    off topic but

    I asked yesterday what asdf means and someone told me that it's just letters you put in the title when you don't have anything else to put there....is that correct?

    asdf

    Gotcha.

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    Corporations are people, my friend.