The District has balanced fourteen budgets in a row’and we will soon pass our fifteenth for FY 2011. The city has received an “A” from all three bond rating agencies for the last six years. Contrary to what some policymakers have suggested, these are not the same conditions that led to a federal takeover of our government in the mid-90s.
This is the cause our fiscal crunch.
DC has made major cuts in response to the recession. More than $600 million has been cut from DC’s budget since FY 2008 to help close budget gaps that have been created as revenues have fallen. Nearly 3,000 DC government positions have been eliminated. Less than a year ago, the Mayor and Council approved $49 million in cuts to human services and low-income programs. The cuts included the closing of two of the District’s seven social service centers and the elimination of a dozen and a half staff positions. The Washington Post later reported days-long waits at social service centers for residents to get their applications for assistance processed.
At least one councilmember has suggested that the District solve its budget crisis by implementing an additional three percent across-the-board cut to the city’s government. Yet such cuts could hurt us in the long run, by disinvesting in programs and services that will help us move toward recovery. Other cities and states have realized this recession-driven crisis cannot be solved by blunt budget cutting. More than 30 states have taken a balanced approach by both raising taxes and cutting spending. They understand this is the responsible approach.
What we need to be concerned about is how best to position our city for recovery from this awful downturn. That requires both strengthening our tax collections and being judicious in our spending.
A few facts to keep in mind:
*At least 33 states have raised taxes on income, business, sales, alcohol, tobacco, motor vehicles, and gasoline to help mitigate the need for deep, destructive budget cuts.
*Noted economists have said that tax increases, especially targeted on high income households, are the preferable way to help balance a budget in recession because it has the smallest effect on spending in the local economy.
*Preserving services that help residents keeps money flowing in the local economy helps maintains public investments that are important to the city’s long-term well-being.
Research shows that states which raised taxes during the last recession actually experienced better-than-average economic growth post- recession than states that did not raise, or cut, taxes.
The following proposals are responsible measures to deal with our current fiscal crisis and set up conditions for growth in the future.
Income Tax: Right now, the top 1 percent of earners in DC’those with income greater than $1.543 million’pay 6.4 percent of their income in taxes. Yet those who earn between $33,000 and $57,000 in income pay 10.5 percent. This disparity isn’t healthy for our city.
Raising income taxes on households earning more than $200,000 would apply only to only the top 5 percent of DC households. For 95 percent, there would be no tax increase. DC’s top income tax rate now starts at just $40,000 of taxable income. Other states have found that high-income tax increases have proven to be effective ways to raise needed revenue, and the impact on migration has been negligible. The total revenue raised through the new rates would mean more than $40 million to protect DC’s schools, health care, and other vital public services.
Out-of-State Bonds: Only DC and Indiana exempt out-of-state bond holders from tax on their bond interest. There’s a simple reason. The exemption creates an incentive for residents to invest in infrastructure in San Francisco or Chicago, not DC.
Sales Tax: DC’s sales tax was created at a time when people spent most of their money on goods. That’s not true anymore. A recent study found that services’such as dog grooming, health clubs, and cleaning’have grown from 30 to 45 percent of personal household spending. And as that share grows, DC sales tax collections will continue to weaken unless we decide to tax what we actually buy.
Hard choices involve looking at both spending and revenue. The Council should consider both as they make their final deliberations on the FY 2011 budget.
