TAX NEWS - 2010

U.S. Tax: Senate drops flood-insurance, sales tax deduction bills

WASHINGTON — Diane Frogge is ready to sell her four-bedroom ranch house in Port St. John, Fla., but a congressional dispute is stopping her.

Lawmakers in the Senate abandoned a legislative package on Thursday that includes a provision to extend the National Flood Insurance Program until Dec. 31. Homebuyers can't get new policies until Congress extends the program, which expired May 31.

"We're kind of stuck now," Frogge said. "It's very frustrating."

Legislation that would allow people to continue claiming a federal tax deduction for paying state sales taxes also was abandoned by the Senate on Thursday, leaving the provision in limbo indefinitely.

The flood-insurance and sales-tax provisions were part of a $110-billion package designed mostly to extend unemployment benefits.

Democrats trimmed the package's Medicaid assistance to states from $24 billion to $16 billion, but Senate Republicans still criticized it as too costly and refused to bring it up for a vote.

Senators voted 57-41 to end debate on the package, short of the 60 votes required. Democratic Sen. Bill Nelson voted yes, and Republican Sen. George LeMieux voted no.

"We've got a bunch of critical stuff in here," Nelson said. "Everything is paid for now, except for unemployment compensation. That has always been considered an emergency in a recession."

But LeMieux said the entire bill should be paid for, rather than adding $33 billion to the deficit.

"Flood insurance is a concern, state sales tax is a concern," LeMieux said. "But guess what? Let's pay for them and not put the debt on our kids and grandkids. We can do it."

Majority Leader Harry Reid, D-Nev., then withdrew the package indefinitely, opting not to break off popular pieces such as the sales-tax deduction.

"We're going to keep these packages together," Reid said. "It's a good package."

Congress created the flood-insurance program in 1968 to provide affordable insurance. The program remained solvent until 2005, but Hurricanes Katrina, Rita and Wilma, along with Midwest flooding, drove it nearly $18.7 billion into debt. The program takes in $3 billion per year, and its borrowing is capped at $20.7 billion.

Florida has 2.1 million flood insurance policies, according to the Federal Emergency Management Agency, including 7,460 in Cocoa Beach, 5,000 in Fort Myers, 3,453 in Pensacola Beach and 2,370 in Tallahassee.

Congress could still revive the legislation and make it retroactive to the start of the year, but Thursday's vote left the provision in doubt.

The need for flood insurance is urgent because an $8,000 federal tax credit for homebuyers is expiring June 30.

The sales-tax deduction, which expired at the end of 2009, would be worth an estimated $1.8 billion per year nationwide. It's important to states such as Florida and Washington that don't have a state income tax.

"This is a critical piece of legislation for thousands of families in our country," Sen. Patty Murray, D-Wash., said Thursday. She said unless the deduction is extended, families will postpone buying cars, appliances and other products.