DC has an itch for tax commissions, though it doesn’t seem to come every seven years. The District established a tax commission in 1977, then again in 1996. And the budget just adopted by the DC Council calls for creation of a new commission that would have 9 months to study and make recommendations for changes to DC’s tax system.
The commission holds promise to help elected leaders and residents better understand the system the city uses to raise revenue, and to develop proposals for strengthening the tax system in a number of ways. But it also could be a wasted opportunity if not taken seriously. The 1996 commission was given resources needed to study tax issues thoroughly, including a full-time director and funds for 14 expert studies. More recent commissions in the city have not matched the depth of analysis of the 1996 tax commission. With a set of issues as complex and controversial as tax policy, the new commission needs to be a serious endeavor backed by solid research.
Why is a tax commission important?
The new commission will have a smaller number of members than the last one — 11 vs. 17 — but otherwise will have similar structure and goals as in 1996: to analyze the District’s tax system in terms of stability, efficiency, equity, ease of administration, and effect upon the District’s economy. The commission is supposed to recommend ways to increase the fairness of the tax system, broaden the tax base, and make DC’s tax system more competitive with surrounding jurisdictions.
A new tax commission makes sense for at least two reasons:
DC’s economy has changed: In 1996, the District was in the midst of a decade-long economic and financial decline and was managed by a financial control board. Today, the District is far healthier — its population is growing, many neighborhoods are flourishing, and the city’s commercial real estate market is the envy of the nation — the world, even.
Some DC’s taxes have changed a lot, while others have been stagnant: Income tax rates have fallen. The city has created the largest state-level earned income tax credit in the nation. Property tax rates have fallen and the city has capped increases in homeowner assessments. Commercial property taxes have been adjusted to benefit smaller properties. Meanwhile, some parts of the tax code have remained static –such as the property tax credit for low-income residents, or DC’s income tax standard deduction, which has lagged behind inflation. DC’s sales tax hasn’t changed much while consumer spending patterns have shifted increasing to services that are not taxed.
What are the keys to success of a tax commission?
A strong director: No commission funded by the District in recent memory has had a full-time director to manage its activities and guide its research.
Independent and expert members: Some recent DC task forces have been made up primarily of representatives of various interested parties, with the the task force turning out to be more of a negotiation among competing interests than an impartial analysis of the issues. Legislation for the new tax commission calls for 6 of 11 members to be experts in various fields of taxation. That is good news.
Research: The 1996 tax revision commission hired a number of consultants, many of them academic researchers, to study issues such as the effect of taxes on economic development and analyses of each major tax source.
Resources: A meaningful tax commission will need money to pay a director and for the research it will seek. Unfortunately, the new budget adopted by the Council does not appear to provide any funding for the new commission.
Will the District take the new tax commission seriously? We certainly hope so, and we’ll be watching for signs that it gets the resources it needs to do the job right.
