Day 8 Of 12 Days Of Tax Deductions

Morning Edition continues with its 12 Days of Tax Deductions series which focuses on individual tax deductions, credits and other breaks in the tax code. Steve Inskeep and David Greene report on the state and local income tax deduction - or sales tax deduction for states with no income tax.

Copyright © 2012 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

DAVID GREENE, HOST:

Now, as we reach the peak of the holidays, let us not forget one of the most significant days of all - New Year's Eve. It's also the end of the tax year.

STEVE INSKEEP, HOST:

Many rules are set to expire and other may change as Congress and the president negotiate over tax laws, which is why we are explaining what the rules are in our 12 Days of Tax Deductions.

(SOUNDBITE OF SONG, "12 DAYS OF CHRISTMAS")

INSKEEP: Today's tax break is a big one, the state and local income tax deduction.

GREENE: And here's how it works. You pay state and local taxes and then when it's time to fill out your federal income tax form, you're allowed to take the state and local taxes as a deduction.

INSKEEP: OK, so, wait, wait, wait. It's a tax deduction for paying taxes?

GREENE: That's a good way to put it. It keeps you from paying taxes twice on the same income.

INSKEEP: You don't have to pay taxes on your taxes.

GREENE: Right, and we talked about this very thing with Barbara Weltman, who is an editor of the book, "Your Income Tax 2013".

BARBARA WELTMAN: The whole concept goes back to the balance between the federal government and the state.

GREENE: This deduction has actually been around for a century, as long as the federal income tax itself.

INSKEEP: And granting that deduction now costs the federal government about 70 billion dollars per year in lost revenue, at a time when tax loopholes are under scrutiny.

GREENE: Getting rid of this deduction would be tough though because it amounts to a subsidy from the feds to the states. Economist Martin Sullivan says it's easier for the states to tax you when they know that you can write it off on the federal level.

MARTIN SULLIVAN: If you took that away, the cost of state and local taxes would be much higher. With all the pressure on state governments now, where they're trying to raise taxes and the political pressure to reduce them, there would be even more political pressure.

GREENE: Many people benefit from this nuance of the tax code and would fight to preserve it.

INSKEEP: And that's the latest of our 12 Days of Deductions.

(SOUNDBITE OF SONG, "HAVE YOURSELF A MERRY LITTLE CHRISTMAS")

INSKEEP: It's the business news on MORNING EDITION from NPR News. I'm Steve Inskeep.

GREENE: And I'm David Greene.

Copyright © 2012 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

Support comes from: