FROM SACRAMENTO — President-elect Barack Obama says he is open to new ideas about how to stimulate the economy. I heard him say it on TV.
So here's an idea for cranking up cash registers while also helping to bail out California's virtually bankrupt state government.
It's not a new idea by any stretch. It's an oldie, but one that makes sense to replay:
Simply restore the pre-1986 law that allowed all Americans who itemize on federal income tax forms to deduct their sales taxes. That, in turn, would help ease the pain in California of a virtually certain state sales tax increase.
Currently, federal taxpayers may choose either the state income tax or the sales tax, but they can't deduct both. They could prior to a tax "reform" signed by President Reagan.
Reagan eliminated the sales tax deduction entirely. The few states that didn't have a state income tax to deduct understandably squawked that the "reform" was unfair. One was Texas. And after Texas Gov. George W. Bush got elected president, taxpayers were given the sales-or-income tax option.
I'd permit itemizers to deduct both state income and sales taxes, but "sunset" the provision after one year. I'd probably secretly want to keep it permanent, but wouldn't announce that for months. Better for recession-nervous consumers to think they've got a one-year window to purchase big-ticket items and save on sales taxes. Buy now.
A Californian who bought a $30,000 new car and was in the 25% income tax bracket would save, on average, $600.
The beauty of this tax break is that it would be a guaranteed stimulus. Taxpayers would get a break only if they bought goods.
By contrast, somebody who merely received a stimulus check could blow it at a casino craps table, on foreign travel or in a political donation. Or, he could hide it under the mattress, as lending institutions essentially did after receiving about $350 billion in bailout money last fall.
I have no idea what it would cost the federal treasury. $50 billion? $100 billion? More? Whatever. Washington obviously isn't concerned about such things these days. They're back there spending hundreds of billions blindly on "stimulus."
Admittedly, there's a flaw in this idea: Taxpayers wouldn't actually realize their sales tax savings until they reported their 2009 tax obligation next year. So they'd also -- by Washington's thinking -- need quick spending money.
