All this week, the District’s Dime blog is featuring entries that highlight some of Mayor Gray’s proposals to raise revenue in the FY 2012 proposed budget.
Mayor Gray’s budget proposes to apply the District’s 6 percent sales tax to live theater performances, a small part of the $160 million in revenue increases in his FY 2012 budget.
As we have discussed throughout the week, the desirability and adequacy of a revenue measure should be based on three important criteria:
- Would it provide sustainable funding?
- Would it make the DC tax system more progressive?
- Would it strengthen DC’s tax system?
In the case of the theater tax, the answers to these questions are “yes,” “yes,” and “yes, but not enough.”
Efforts to broaden the city’s sales tax base make sense because a the sales tax can remain a reliable source of revenue only if it matches how money is spent and keeps up with changing consumption patterns. A broad sales tax also is a matter of fairness, making sure that some parts of our economy (theaters) don’t have an advantage over others (movies) by not being taxed. However, this proposal does not go far enough. Rather than hone in on one specific industry, the District would be better served by expanding the sales tax to cover a wide array of the services that residents and visitors purchase.
Does the revenue proposal provide sustainable funding for DC’s budget? Yes. A tax on live theater performances would provide a revenue stream that the city can reasonably project into the future.
Does the revenue proposal make DC’s tax system more progressive? Yes. Sales taxes generally are regressive, because low-income residents spend a greater portion of their income on goods and services than do high-income residents. However, attending the theater is more discretionary than many other purchases, such as clothing or laundry detergent, which suggests that applying sales tax to theater tickets would be more progressive than the sales tax overall.
But the main goal of broadening the sales tax is not to cover “luxury” purchases or make the tax system more progressive. The real goal is to strengthen the tax system. Which brings us to”¦
Does the revenue proposal strengthen DC’s tax system? Yes, but not enough. For decades, the national and DC economies have been increasingly dominated by services, as opposed to goods. This means that a sales tax limited to goods will become increasingly irrelevant over time. Broadening the sales tax to theater helps to more accurately reflect the District’s economy and better enables the city to better meet its future needs. It is unfortunate, though, that Mayor Gray chose to take such a small, piecemeal approach to reforming the sales tax. That opens this proposal to criticism that it is arbitrarily and unfairly targeting a particular industry for taxation. A better approach would have been to identify a broader array of services that should be covered by the sales tax.
