Originally delivered on May 13, 2026
Chairperson Mendelson and members of the Committee, thank you for the opportunity to testify. My name is Erica Williams, and I am the Executive Director of the DC Fiscal Policy Institute (DCFPI) and a former appointee to the DC Tax Revision Commission (TRC). DCFPI shapes racially-just tax, budget, and policy decisions by centering Black and brown communities in our research and analysis, community partnerships, and advocacy efforts to advance an antiracist, equitable future.
Mayor Bowser’s budget proposal would usher in the greatest local safety net cuts in a generation and short-term revenue strategies that fail to put the District on stronger footing over the financial plan. DC faces a perfect storm of slowing revenue growth, a trend that reflects the pandemic’s lingering harm, as well as local recession triggered by federal layoffs and a shredded federal safety net. This reality requires that the District use all the tools at its disposal, including new sources of revenue, to triage the fiscal year (FY) 2027 budget and stabilize revenue over the longer term. Specifically, DCFPI recommends Council take a balanced approach to mitigating damaging FY 2027 safety net cuts by:
- Permanently decoupling from federal tax cuts, tapping reserves, and recouping dollars from Events DC;
- Shifting scarce dollars away from ineffective, unproven, or excessive spending; and,
- Piggybacking on a federal tax on proceeds from wealth.
In addition, to position DC for longer term revenue stability, Council should require a feasibility analysis of a business activity tax (or BAT) for the District so that this tax proposal can be fully considered by DC Council for future years.
Our revenue recommendations would also improve racial equity in DC’s tax code and level the playing field for DC resident-owned businesses. And, new polling data show that DC’s voters approve of both ways of raising revenue, particularly to avoid cuts to child care and the Pay Equity Fund.
Mayor’s Budget Proposes Massive Safety Net Cuts and Minimal Revenue, and Does Not Reflect Voter Sentiment
Lessons learned from past recessions underscore that DC lawmakers need a balanced approach to the local recession that includes raising revenue to minimize budget cuts at a time when need is growing. More public investment in residents’ wellbeing during an economic downturn can speed up recovery, by partially replacing lost income for unemployed residents, for example.[1] Yet today, DC faces the biggest local safety net cuts of a generation that will harm people, slow recovery, and hamper the economy, with minimal revenue raising strategies in the mayor’s proposed FY 2027 budget and four year financial plan.
The District does indeed face incredible challenges. The Trump Administration’s extreme agenda has resulted in a loss of 24,000 jobs held by federal workers, which the Office of Chief Financial Officer (OCFO) estimates will cost DC a loss of $600 million in revenue over the financial plan.[2] In addition, federal lawmakers tried to force DC to replicate the tax cuts enshrined in the One Big Beautiful Bill Act (OBBBA) at the local level at a cost of up to $690 million between FY 2025 and FY 2029.[3] DC has only temporarily decoupled from those provisions and could lose all or part of those dollars if decoupling is not made permanent. This pressure comes atop the slowdown in commercial property tax collections that has cost DC over $260 million since FY 2022 (Table 1).
TABLE 1.
However, the mayor’s response to these fiscal challenges has been to deeply cut health coverage, child care, early educator pay, cash assistance, tax credits for families with children, housing affordability programs, environmental programs that benefit low- and moderate-income households, and more. DC Council should reject these choices and take a balanced approach that includes budget shifts and immediate and longer-term revenue raisers.
Federal lawmakers paid for OBBBA tax cuts in part through severe cuts to health care, food assistance, and other critical programs that DC residents rely on, all of which puts massive pressure on DC’s budget.[4] Meanwhile, over 70 percent of the nearly $1.4 billion in OBBBA tax cuts going to DC residents benefit families within the top 20 percent of incomes and 42 percent go to the top 5 percent alone.[5] DC can recapture some of the massive windfall of tax cuts for DC’s wealthiest residents through local taxes and use the revenue to reduce cuts to DC’s basic human needs programs. And DC can look to longer-term revenue raisers like a BAT that would make business taxation fairer while raising stable revenue for the future.
DC residents support doing so. New polling commissioned by DC Action and conducted by Lake Research Partners finds that 73 percent of DC voters support taxing the passive income generated from things like capital gains and 76 percent support taxing the wealth of the top 5 percent of households. Similarly, 74 percent of voters support a BAT after a brief explanation of who the tax affects. Moreover, voters support these taxes to mitigate cuts to child care and the Pay Equity Fund, among other social services.[6]
Council should use every tool at its disposal to stabilize DC revenue and to restore proposed cuts to the safety net that are damaging for people, families, communities, and the District’s economy.
DC Must Decouple From Federal Tax Cuts Permanently and Leverage Other Available Funds
Mayor Bowser’s budget proposal would partially and temporarily decouple from select OBBBA tax provisions, raising $78.1 million in FY 2027 and $58.7 million in FY 2028.[7] These are revenue savings far smaller than under DC Council’s enacted temporary decoupling measure, which the OCFO estimated would raise $157.6 million in FY 2027 and a declining amount each year thereafter.[8]
The mayor’s proposal delinks from OBBBA’s higher standard deduction provision in tax year (TY) 2026, and for TYs 2026 and 2027, from a charitable deduction for non-itemizers, increases to the amount of interest a business may expense, and from a special depreciation allowance for qualified production property. Her proposal also decouples from provisions that would have retroactively allowed businesses to deduct research and experimental costs between TYs 2022 and TY 2025 but aligns with that provision in TY 2026. DC uses rolling conformity, meaning the District will automatically adopt the remaining OBBBA provisions if the approved FY 2027 budget only maintains the mayor’s changes. Similarly, DC will also automatically adopt future federal tax changes unless lawmakers move specific legislation to reject those changes, which again leaves DC at continued risk of similar federal interference.
DC Council should make permanent more of the decoupling provisions that they approved last year to safeguard precious local dollars, especially as the city confronts a federally-induced economic downturn. And to protect DC’s autonomy around future federal tax changes in the long-term, the DC Council should adopt static (or “fixed date”) conformity, meaning conforming to federal tax laws as of a specific date and vet any federal tax changes made beyond that date through the legislative process after careful review rather than automatically adopting changes unless specifically rejected, as is currently the case in DC.[9] If adopted, static conformity means that the next time Congress passes a major tax bill, DC law would not change unless and until DC policymakers introduced and successfully passed legislation to conform to the changes.
The District can permanently decouple from OBBBA by passing legislation shifting DC’s tax code to conform to the federal tax code as of January 1, 2025. This path would also offer DC Council a vehicle for making the EITC boost and new CTC permanent as well, rather than relying on a sales tax increase or a progressive revenue measure taxing wealth. Doing so would ensure that revenue savings and tax credits are available to support DC households—and 61,700 children—to afford basic needs like food, rent, and childcare during the local economic downturn.[10]
In the meantime, the CFO should allow the Council to appropriate $180 million of the savings under the temporary law that he is wrongly setting aside for “legal risk” in case a taxpayer or entity sues DC over the decoupling law.[11] It also remains unclear to DCFPI how the CFO is accounting for the net revenue raised in FY 2025—around $97 million before netting out the EITC expansion to 100 percent of the federal credit—from the emergency decoupling law, as his office excluded the FY 2025 revenue impact from the updated FIS for the temporary bill and there appears to be no reference to these dollars in the FY 2026 supplemental narrative or FY 2027 budget books.[12]
The CFO also rejected other sources of revenue in the mayor’s proposal, including modifying days of cash on hand to 60 days from 66 days and using more of the fiscal stabilization reserve (which is a locally-mandated reserve), according to the City Administrator’s remarks at the Committee of the Whole’s Budget Oversight Hearing on the FY 2026 supplemental budget.
Council Should Shift Scarce Dollars Away From Ineffective, Unproven Tax Breaks and Areas of Excessive Spending
For years, DC lawmakers have chosen to invest substantial public resources into tax abatements for developers, tax incentives for corporations, and other subsidies for corporations under the assumption that these tax breaks benefit all DC residents through more economic growth and jobs. But this spending has not created widespread economic benefits, nor have they been subject to evaluation before the mayor and Council increase their funding or allow for automatic escalations. Instead, inequality in employment, income, and wealth has continued unabated, more Black residents have been displaced, and the District has backtracked on chronic racial economic disparities like with child poverty.[13] In the face of massive cuts to health, paid leave, cash assistance, housing supports, and other public investments that would set DC’s communities and economy back, lawmakers should redirect resources for unproven tax breaks and other areas of excessive spending, like within the Metropolitan Police Department (MPD) budget, to minimize cuts.
Housing in Downtown Abatement
The Housing in Downtown (HID) abatement offers commercial property owners a 20-year exemption on office buildings that they convert to residential property. The allotment for this abatement is set to jump to $41 million in FY 2028 and has a 4-percent escalation each year thereafter.
Council should adopt a moratorium on any new projects until the OCFO has conducted a thorough evaluation to determine whether the abatement catalyzes conversions or simply subsidizes what commercial property owners already would have chosen to do. Our analysis of the Deputy Mayor of Planning and Economic Development (DMPED) performance oversight hearing responses shows that there is $49 million in savings over the financial plan if Council put a stop to additional projects and recouped the balance of abatement funds under the current annual allowable amounts. This is minimal in FY 2027 but substantial in FY 2028 and FY 2029 (Table 2). Council also should end the 4 percent year-over-year escalations, particularly for an abatement that has no guardrails, clawbacks, or evaluative component.
TABLE 2.
Office to Anything Property Tax Abatement
The Office to Anything (O2A) program (officially the Central Washington Activation Projects Temporary Tax Abatement) currently does not have any active abatement allocations. DMPED stated in its performance oversight hearing responses that it received only two O2A applications since enacted. Like the Housing in Downtown Abatement, this program begins relatively small with annual increases before a 4 percent annual increase kicks in by FY 2029, again with no evidence that the abatement is needed or that it catalyzes projects rather than subsidizing what property owners would have done anyway. Ending the program while no projects are in the pipeline would save $5 million in FY 2027 and over $27 million over the course of the financial plan.
Other Economic Development Spending to Potentially De-Prioritize
In FY 2026, lawmakers appropriated $31 million to DMPED for incentives, marketing, and business attraction across three programs that appear to have a lot of overlap in what they aim to do and none of which have been evaluated for effectiveness. In FY 2026, lawmakers appropriated $31 million to DMPED for incentives, marketing, and business attraction across three programs that appear to have a lot of overlap in what they aim to do and none of which have been evaluated for effectiveness. For example, these are the descriptions for each program in the DMPED budget book:
- Business Development – promotes local business opportunities and strengthens the business climate to attract and retain businesses and expand entrepreneurship;
- Sponsorships and Incentives – utilizes incentives and other recruitment programs for business attraction, retention, and job creation; and,
- Washington DC Economic Partnership – supports WDCEP, which promotes economic development in the District, including business attraction and retention, entrepreneurship, technology, and real estate development.[14]
Reduce Increases to MPD Overtime and Potentially Other Increases
The DC Auditor has testified on multiple occasions in front of the Committee of the Whole about agency overspending and highlighted that MPD is a flagrant offender of spending beyond budgeted authority. She has noted that this overspending is often blamed on a need for more officers even as DC has more sworn officers per capita than other US cities, and she has noted that experts recommend reallocating patrol officers across police districts and shifts instead of hiring more people. DC Auditor Patterson also has shone a light on internal MPD policies that increase overtime costs even when officers are not working overtime. DC Council should at a minimum reduce the $43 million increase in overtime pay proposed by the mayor and redirect those dollars to shoring up the safety net.
DCFPI’s other ideas for budget shifts in ineffective, unproven programs and proposals—such as the newly proposed reductions to corporate fees—is covered in a different testimony by my colleague, Shira Markoff.
DC Should Piggyback on a Federal Tax on Proceeds from Wealth to Recapture OBBBA Tax Cuts and Invest in Hardest Hit Residents
DC can raise revenue needed for a balanced approach to the local recession and recapture some of the windfall tax cuts under OBBBA for DC by taxing more of the gains, or proceeds, generated by wealth—such as capital gains, dividends, and other forms of passive income. Applying a local percentage on proceeds generated from wealth is a simple way for DC to raise hundreds of millions of dollars to help struggling residents withstand the local recession. In addition to permanent decoupling, a wealth proceeds tax (WPT) would help DC recoup more of the massive tax breaks going to DC’s wealthiest households under OBBBA, afforded through federal safety net cuts, in order to mitigate cuts to local health coverage, cash assistance, housing assistance, and other programs.[15]
DC Can Raise Revenue to Avoid Damaging Cuts with a Wealth Proceeds Tax
DC can levy an additional local percentage to the federal Net Investment Income Tax (NIIT), as recommended by the Institute on Taxation and Economic Policy (ITEP).[16] Federal lawmakers adopted the NIIT to support implementation of the Affordable Care Act, asking people with passive income, largely from capital gains (e.g., from cashed-in stocks), to pay a 3.8 percent surcharge on wealth that exceeds a relatively high threshold. The NIIT applies only to wealth that exceeds a modified adjusted gross income of $200,000 for single filers and $250,000 for married filers.[17] For example, a resident with $150,000 in wage income and $75,000 in capital gains would owe NIIT on just $25,000 of their capital gains.
DC could simply add a local surcharge of 2 percent, or higher, to that same wealth reported to the federal government to yield substantial new annual revenue (Table 3).
TABLE 3.
A Wealth Proceeds Tax Would Largely Apply to Very Wealthy Households
Just 9 percent of DC taxpayers would pay the WPT, and it would largely fall on the very wealthy, according to ITEP. For example, about 82.3 percent of the new revenue would come from households with incomes over $1 million; another 9.4 percent would come from households with incomes between $500,000 and $1 million; just 8.2 percent would come from households between $200,000 and $500,000 (Figure 1). A history of racist policies that denied Black and non-Black people of color wealth-building opportunities has meant that high levels of wealth in DC and nationally continue to be predominantly held by white people. Nationally, 82 percent of stocks—which make up the lion’s share of capital gains—held by people with incomes above the NIIT thresholds are held by white people, while just 0.5 percent of those stocks are held by Black people and 0.5 percent are held by Hispanic people, according to ITEP.[18]
FIGURE 1.
A Wealth Proceeds Tax Would Be Simple to Administer
Taxing wealth through a surcharge on an already existing federal tax would also be simple to implement. DC can piggyback on federal tax filings simply by adding a local percentage, which minimizes administrative costs for both taxpayers and the Office of Tax and Revenue. The federal government already defines what counts as wealth-derived passive income, so DC can simply adopt that framework. And DC would not be the first jurisdiction to do this. In 2023, Minnesota decided to piggyback on the federal NIIT, using a straightforward law to tax wealth.[19] The state is now generating substantial new revenue.
OCFO Should Conduct a Feasibility Analysis of a DC Business Activity Tax, Putting the Option on the Table for a Future Year
DCFPI co-authored a proposal for a BAT for the District with Nick Johnson, the former Executive Director of the TRC and now senior fellow at ITEP—and, support for that proposal is growing. New Hampshire has had such a tax for decades, and the 1998 Tax Revision Commission proposed it before the 2022-2024 commission included it in its draft recommendations. The New Hampshire version of the BAT was quickly implemented, is simple to pay, and has delivered a steady stream of revenue to the state, all without affecting business location decisions. [20]
To ensure the BAT proposal for DC can receive full vetting and consideration, in the Budget Support Act, DC Council should require that the OCFO perform a feasibility analysis of a BAT to aid in honing its design, rules, and path for quick implementation by the end of summer of this year. Such an analysis should include:
- An understanding of the distribution of businesses by gross receipts and net income to better design “hold harmless” parameters from businesses already meaningfully contributing to DC’s unincorporated and corporate franchise taxes and personal income tax. This may include higher gross receipts exemptions or a threshold below which businesses are not subject to the BAT. Or it may include different or graduated tax rates. The OCFO can use the detailed business data it has (and that is not public) to model how much can be raised under the parameters that uphold the intent of the proposal to not raise taxes on businesses already making significant contributions.
- More precise estimates of the level of revenue that could be raised under different parameters and the potential for directing some of that revenue to reducing or replacing other business taxes. For example, as DCFPI has proposed, a BAT could be used in part to “buy down” other taxes affecting DC businesses, like the payroll tax. The OCFO can estimate the cost of such proposals and the share of businesses that would get a net tax cut under each scenario.
- The data collection, rulemaking, and processes that would be needed to quickly implement a BAT, should lawmakers adopt one. New Hampshire—where an analogous tax has been in place for decades—enacted and implemented their version of the BAT immediately and without issue.[21] The OCFO should be able to chart a path to potential implementation that is substantially shorter than his off-the-cuff estimate of two-to-three years at this year’s performance oversight hearing on February 24, 2026.
A Business Activity Tax Would Close a Costly Loophole in the District Tax Code
Despite benefiting from DC’s publicly funded services including mass transit, roads, and public education, some businesses operating in the District do not contribute to the District’s shared resources through its primary business taxes. By enacting a BAT—a new, simple, broad-based value-added tax—DC would make business taxation fairer and more racially equitable. It would also raise significant revenue for the District, helping to make up for declining revenue sources like commercial property tax collections.
Because of a federally imposed restriction, the District uniquely exempts from taxation certain businesses including major law firms, lobbyists, and consulting firms, most of which are white-owned. And these benefits go entirely to business owners who live outside of DC. A BAT would correct this loophole, broadening the base of business taxation without increasing taxes on businesses that already meaningfully contribute to DC’s collective resources. This a reform that the TRC considered during its deliberations from 2022 to 2024.
A BAT, as DCFPI has envisioned, would:
- Modify the TRC proposal to complement existing franchise taxes, rather than adding to them or replacing them, so that it would affect only businesses that now pay little or no tax. DCFPI estimates a BAT under this model could raise $500 million annually.
- Exempt at least the first $200,000 of economic activity from tax, benefiting the District’s small businesses, and apply a low BAT rate.
- Offer a dollar-for-dollar credit in the amount of their BAT liability against DC’s unincorporated business, corporate franchise, or personal income tax paid by DC businesses. This is an element crucial to protecting fair business taxation. A BAT would not double tax DC’s businesses but instead complement existing franchise taxes and personal income taxes (paid by some business owners). This design would limit the BAT to the businesses that now pay little or no tax.
- Broaden DC’s base of business taxation while leveling the playing field, compared with other options, improve racial equity in business taxation, and be consistent with the Home Rule Act.[22] It also could bring in new revenue from multi-state corporations that are able to minimize their profits for the purposes of taxes, if their BAT liability exceeds the current corporate franchise tax that they pay.
- Not create incentives for businesses to move out of the District, both because of how the tax is structured, and because lawmakers could use revenue from the tax to reduce the payroll tax for businesses and to stave off cuts to health care, child care, and other services that make DC attractive.
- Make DC’s tax system more resilient. The New Hampshire experience shows significant and stable revenue without economic disruption. That makes a BAT a promising revenue source at a time when the District’s economy is changing.[23]
Thank you for the opportunity to testify. I am happy to answer any questions.
