The DC Tax Revision Commission soon will decide on a final set of recommendations, after 16 months of research and deliberation. The final meeting is Monday, December 9, at 1:30 p.m., where my fellow commissioners and I will consider and possibly modify a proposal issued by Chairman Tony Williams this week. This “chairman’s mark” includes a number of important recommendations for how DC raises revenue to support services with the goal of making taxes fairer, improving economic competitiveness, and strengthening tax administration.
The chairman’s mark includes steps to reduce income taxes for low- and moderate-income residents, which DCFPI strongly supports. There also are a number of important issues that remain unresolved, such as the cost of the total package, whether to maintain DC’s top income tax rate, and how to cut business taxes.
Recommendations DCFPI Supports:
- Increasing Standard Deduction and Personal Exemption On Income Taxes, Plus Lowering Tax Rates for Moderate-Income Residents
The standard deduction and personal exemption are important to making an income tax progressive, yet DC’s deductions are much smaller than in the average state. The chairman’s mark would raise these deductions to match the federal income tax levels. This is similar to proposals introduced this year by DC council members Tommy Wells and Anita Bonds to raise the standard deduction. The chairman’s mark also would create a new income tax bracket, with a lower rate, for families with taxable incomes between $40,000 and $80,000.
- New Earned Income Tax Credit for Working Poor Residents without Kids in the Home
The Earned Income Tax Credit (EITC) helps lift working poor families out of poverty, but the benefits are very limited for low-income workers without children and for non-custodial parents. The Chairman’s mark would create a new EITC for these workers with a maximum credit of about $500.
- Review of Impacts of Tax Incentive Programs
The District offers a number of tax incentives intended to meet certain goals, such as increasing high-tech companies. Yet the city has no process to review how well such programs work. The commission is likely to recommend the creation of a review process for all tax incentives, following recommendations from the Pew Research Center and consistent with legislation introduced this year by Council member Cheh.
Unresolved Issues Of Concern For DCFPI:
- DC’s Top Income Tax Rate
Since 2011, DC’s top income rate has been 8.95 percent for income above $350,000. Without this, DC’s top income tax rate would start at $40,000 of taxable income (or at $80,000 under the commission’s proposals). Some commissioners would like the 8.95 percent rate to expire, as it is slated to do under current law. But DCFPI notes that nearly 9 of 10 high-income residents supported such an increase when it was proposed in 2011. We see elimination of this rate as a step backwards in tax progressivity.
- Business Income Tax Cut
The Commission received research that DC has outperformed both the Maryland and Virginia suburbs in growth in jobs and the number of businesses over the past decade, and that the city remains competitive with both Virginia and Maryland in terms of the taxes paid by businesses. The research suggested that the District did not need any major changes to business taxes or rates. Nevertheless, the chairman’s mark would reduce the business income tax rate, with the goal of sending a signal that the city is business-friendly. One proposal would reduce the rate to 7.75 percent, below Maryland’s tax rate but above Virginia’s — at a relatively high cost of $74 million. DCFPI supports a smaller reduction — to 8.95 percent — which would match DC’s personal income tax rate, so that nationwide corporations and other businesses are not paying a lower tax rate on their income than DC residents.
- Cost of the Package
The chairman’s mark has both revenue increases and decreases under two sets of options. The more ambitious proposal would cut taxes by $178 million, which is far larger than the city’s projected budget surpluses. DCFPI believes that the price tag for the final package should be much smaller, both to ensure that it can actually be adopted and to ensure that tax cuts do not limit the ability of the city to make important investments, in areas such as education and housing.
We encourage interested residents to attend the meeting on Monday, December 9, at 1:30. The meeting will be in Room 250 of 1101 4th Street, SW, near the Waterfront Metro.
