Harry Jaffe’s column has an accounting problem.
In the Washington Examiner yesterday, Jaffe published erroneous numbers that greatly inflated how much high income earners would pay under DC’s new income tax structure. In all fairness, Jaffe got those numbers from an information request from a city agency. We hope a correction or clarification on the numbers will be printed soon.
We feel it is important to highlight what the accurate numbers show, namely that the tax increase the DC Council passed last week is very modest.
To quote President Obama: “It’s not class warfare, it’s math.”
What the Council decided to do is create a marginal tax rate for residents who earn more than $350,000. A marginal tax rate means that the increased rate is only paid on income that exceeds the new threshold.
So a quick quiz:
- How much more do residents who have less than $350,000 in taxable income pay under the new law? Zero. Zip. Nada. These residents pay the same amount they paid under the old law. The new income tax only applies to taxable income greater than $350,000.
- What about a resident who has $500,000 in taxable income, which is calculated as earned income minus deductions? Here’s how to calculate. Just as we noted above, up to $350,000 is taxed at the same rate as before, which is 8.5%. What changes is that any taxable income exceeding $350,000 is now taxed at a higher rate of 8.95%. Now grab your calculator.
The income that will be taxed at the higher rate is $500,000-$350,000=$150,000.
The new rate taxes $150,000 at the 8.95% rate: $150,000X.0895=$13,425
The old rate taxes $150,000 at the 8.5% rate: $150,000X.0850=$12,750
So how much more will a half millionaire pay under the new law? $13,425-$12,750=$675. Yes, you read right: $675. That is 0.14% of income.
- So how much more does a resident who has $350,000 in taxable income pay? Zero. Yes, it’s kind of a trick question in that the tax kicks in for income that exceeds $350,000.
Does $675 from a half millionaire sound to you like “soaking the rich?”
Jaffe said he checked with his high-income friends about the tax, but he could not directly find anyone bothered by it. DCFPI decided to go beyond our circle and checked with 504 randomly selected DC residents. The Hart Research poll found that an overwhelming majority of high income earners supported an income tax increase at $200,000, which is a lower income threshold than the tax that was passed. These residents’and a majority of residents overall’said that their top priorities were funding for education, public safety and social services’NOT holding down taxes. The poll results have been out for months, and we think it shows that high-income residents by and large do not see a tax increase on them as class warfare.
Somewhat lost in the recent debate was that the fact that the Great Recession impacted our city finances. In order just to maintain services, we needed to fill a $322 million budget gap. Our city’s leaders decided to take a balanced approach to filling that gap by making some cuts and adding some revenue. The income tax, in the end, was part of that balanced approach that helped preserve education funding, homeless services and other programs that help out city and its residents grow. Even with the modest tax increase, the budget includes cuts to libraries, assistance for people with disabilities, public sanitation, housing, and more.
