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News from the east.

I'VE BEEN BURNING UP INTERSTATE 40 over the past month. During a pass through Nashville, I picked up The Tennessean, one of the worst newspapers in America, and actually discovered a piece of news that should be of interest all over the country. If it has been reported here at home, I missed it.

Last month, the U.S. House of Representatives approved legislation that, among many other things, would permit state sales tax to be an itemized deduction on federal income tax returns, just like state income and property taxes. Why would such an appealing proposal not be big news in Arkansas, which has one of the higher sales tax rates in the country? Because it would only apply to residents of seven states that do not levy income taxes: Tennessee, Texas, Florida, Nevada, South Dakota, Washington and Wyoming.

Readers may recall that state sales taxes were deductible for all taxpayers who itemized their federal deductions until 1986, when that benefit was sacrificed in exchange for general tax cuts. The deductibility of property taxes and income taxes was preserved in a deliberate attempt by Congress to encourage progressive taxation and discourage regressive taxation.

All taxpayers lost the sales tax exemption, but those living in states without income taxes set up a cry of "unfair" and a hue of "discrimination."

The 10 years I lived in Tennessee persuaded me that those people are crazy. No one enjoys paying taxes, but your average Tennessean believes that a state income tax would be a sacrilege. Former Gov. Don Sundquist proposed one to address a state fiscal crisis and was met with a protest--some might describe it as a riot--that included the heaving of a rock through his office window at the Capitol in Nashville. A state that is more politically conservative than Arkansas and very nearly as fundamentalist in its religious leanings eventually accepted a lottery--gambling designed to prey on poor folks--as a lesser evil than an income tax. (The more regressive a tax is, the better Tennesseans like it.)

And now they want those of us who pay both income taxes and sales taxes to subsidize a new deduction that they call "Sales Tax Fairness." That it would only apply to taxpayers who itemize (35 percent nationally, but fewer than 25 percent in Tennessee) means that this subsidy wouldn't even be going to the people who need it most.

For Arkansans, the irony of this should be painfully obvious. Arkansas' state sales tax of 6 percent is higher than the 4 percent levied in South Dakota and Wyoming and equal to that of Florida--except Florida exempts food from the sales tax, making it effectively lower than Arkansas'. Texas has a 6.25 percent sales tax and Washington a 6.5 percent rate, but food is exempt in both cases. And Tennessee taxes most things at 7 percent, but its tax on groceries is the same 6 percent that we pay. And, remember, these folks aren't getting a deduction for their state income taxes only because they aren't paying any.

Actually, Tennessee does levy a tax on dividend and interest income, which the other six states do not. So Tennessee wants three types of state tax to be deductible while the rest of us will only get two deductions.

The "seven states" provision is a mere $4 billion of a $155 billion House bill mainly intended to resolve a trade dispute and provide new corporate tax cuts. (After all, Bush is still president, and cutting taxes is what he does best.) But the Senate version of the bill doesn't include the sales tax deductibility provision, so it will be up to a conference committee to hammer out the differences.

It must be nice to have a homeboy as Senate Majority Leader.

I won $2--double my stake--on Tennessee lottery tickets last month.

We stopped for gas on the outskirts of Nashville, and while I waited for my 10-year-old son to come out of the restroom, I studied the lottery display.

When he appeared, I said, "Okay, I'm willing to donate $2 to the state of Tennessee. Do we want one two-dollar ticket or two one-dollar tickets?" Grant, clueless, decided on two one-dollar tickets.

The cashier eyed us as I let him decide which games to play. He picked tic-tac-toe and some other scratch-off game.

The cashier didn't budge, so I said, "Speak up, sweetie. Tell the lady which ones you want."

And the woman behind the counter said, in total seriousness, "He's too young to play the lottery."

Gwen Moritz is editor of Arkansas Business. E-mail her at gmoritz@abpg.com.
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Title Annotation:Editor's Note
Author:Moritz, Gwen
Publication:Arkansas Business
Geographic Code:1U7AR
Date:Jul 12, 2004
Words:768
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