5:08am

Wed December 19, 2012
Business

Day 8 Of 12 Days Of Tax Deductions

Originally published on Thu December 20, 2012 5:44 am

Transcript

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. Transcript provided by NPR, Copyright National Public Radio.