Originally delivered on May 4, 2026
Chairman Mendelson and members of the Committee, thank you for the opportunity to testify today. My name is Tazra Mitchell, and I am the Chief Policy and Strategy Officer at the DC Fiscal Policy Institute (DCFPI). DCFPI is a non-profit organization that 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.
My testimony focuses on Mayor Bowser’s revenue strategy in her fiscal year (FY) 2027 budget proposal and additional revenue ideas that the DC Council should consider in its budget plan. It lays out tough choices that DC Council may consider to restore the Earned Income Tax Credit (EITC) and adoption of a robust Child Tax Credit (CTC), and it also makes recommendations on tax proposals Council should preserve from the mayor’s budget plan.
Council Should Preserve the Sales Tax Delay Due to Its Inequitable Impact, or Offset It with Restoring DC’s Tax Credits
The mayor’s budget proposal would delay by one year a sales tax increase to 7 percent from 6 percent that is scheduled to go into effect October 1, 2026, reducing tax collections by $146.4 million in FY 2027. The mayor first proposed a sales tax increase over a two-year period in her FY 2025 budget proposal, from 6 percent to 6.5 percent in FY 2026 and then to 7 percent in FY 2027; she delayed by one year the first half-cent sales tax bump in her FY 2026 budget proposal and then delayed the full one percentage point increase in this year’s proposal.[1]
A 1 percent sales tax increase would hit the budgets of the area’s lowest-income families 7.25 times harder than those of the richest top 1 percent, according to analysis the Institute on Taxation and Economic Policy (ITEP) conducted for DCFPI (Figure 1).[2] Because families struggling to make ends meet or primarily relying on limited benefits such as Social Security typically spend every dollar they take in, they end up devoting a larger share of their income on purchases subject to sales tax.[3] Put simply, buying things like diapers, clothes, and school supplies takes up a sizable share of income for families with limited disposable incomes, while barely registering on the budgets of the well-off.
Allowing the sales tax to increase by another percentage point would worsen this disparity. For the poorest fifth of DC households—those with incomes below roughly $26,700—a 1 percent sales tax would consume 0.31 percent of their income. As income rises, the share of income devoted to a 1 percent sales tax would fall steadily, reaching 0.04 percent of income for the richest 1 percent of households.[4] This means that a sales tax increase would fall hardest on families already struggling to cope with DC’s high costs of living (and disproportionately on Black and brown residents) than on families that have amassed high levels of income and wealth (primarily white residents).
Approximately 8.5 of every 10 extremely low-income renters in DC devoted more than 30 percent of their income to housing on average from 2019 to 2023, meaning that their budgets have no wiggle room for added expenses.[5] DC made zero progress on raising median household incomes or reducing racial disparities under that measure in 2024, and the District experienced a 3.3 percent point rise in poverty and an 11.2 percentage point rise in child poverty in 2024.[6] The already dire conditions for Black and brown residents and those with low incomes are likely to worsen this year and beyond as the combined harm of federal layoffs on DC’s economy and cuts to vital safety net programs like Temporary Assistance for Needy Families, the Supplemental Nutrition Assistance Program, and Medicaid take effect.
FIGURE 1
The Mayor’s Proposal Fails to Restore Progressive Tax Credits That Boost Economic Security
The mayor’s proposal also failed to make permanent the increase to DC’s EITC and CTC that the DC Council enacted via a temporary bill—which decoupled from many individual and business income tax provisions in OBBBA—that expires September 25, 2026.[7] The temporary bill increased DC’s EITC to 100 percent from 85 percent of the federal tax credit, fast-tracking the increase to tax year (TY) 2025 retroactively, or four tax years earlier than planned. The mayor’s proposal keeps the tax credit at 85 percent of the federal credit for TY 2026 and beyond, meaning DC taxpayers will receive the 100 percent DC EITC for TY 2025 only unless the DC Council extends it. Similarly, Mayor Bowser’s proposal fails to fund the revived CTC in TY 2026, meaning DC families would never benefit from the DC Council’s temporary measure because it will have expired by the time the FY 2027 budget starts, unless the DC Council restores the credit in its budget.
Nearly 62,000 children would benefit from these credits, according to ITEP. Most of the gains would go to households earning less than $61,000, although they would also benefit middle income households with children (Figure 2). Households earning under about $27,000 would receive the most support, with an average tax cut of $1,492.[8] To put this figure in perspective, that amount could cover one month of fair market rent for a one-bedroom unit in Marshall Heights (Ward 7).[9] This support is especially important for Black families, whose median household income ($60,591) is just over one-third of that of white, non-Hispanic households ($168,800).[10]
FIGURE 2
These two credits are highly effective, proven tools for reducing child poverty with long-term benefits over children’s life cycle and for the economy broadly.[11] And, the combined effect of the revived CTC and expanded EITC was projected to reduce child poverty in the District by 20 percent, using the Supplemental Poverty Measure, according to unpublished analyses for DCFPI from Columbia University’s Center on Poverty and Social Policy.[12] And, at a time of severe federal job loss, these credits can help middle income families stay afloat as they look for new employment opportunities.
Restoring Tax Credits that Boost Economic Security Would Offset Harm of a Sales Tax Increase for Some Households
Given DC residents are likely facing the greatest cut to the local and federal safety net in a generation, the DC Council may consider allowing the sales tax to go into effect—or a portion of it—and use some of the savings to restore the EITC and/or CTC. If lawmakers were to allow the full one percentage point increase to go into effect in October 2026 and pair it with the decoupling law’s EITC expansion and revived child tax credit, on average, households in the bottom 40th would fare the best, seeing a decrease in taxes owed as a share of their income whereas families in the middle of the income distribution would see an increase in taxes owed, albeit at a lower share than with just a sales tax increase alone (Figure 3). The value of the CTC is worth more to households with low- and moderate incomes, which is why they would benefit more from a general sales tax increase paired with a CTC than a sales tax increase paired with the EITC expansion.
However, taxpayers in the middle—those earning between $61,000 and $118,500 a year—would still face a small tax increase under this approach as the CTC would only partially offset the sales tax increase (the EITC does not generally reach these families). Many in this quintile are among the households already struggling to afford living in the District, so this tradeoff would cause some harm a year earlier than what is in the financial plan. Another caveat to this approach is that the mayor delayed the sales tax increase for one year only, in FY 2027, so the public revenue could only be swapped on a non-recurring basis, leaving the tax credits again funded on a temporary versus permanent basis. Or, lawmakers should be able to take the sales tax revenue saved and spread it across multiple years of the plan via non-recurring investments and adopt lower values to these tax credits to secure them in the financial plan until the economy recovers, among other options.
The Chief Financial Officer (CFO) estimated the cost of these credits to be $73.1 million annually, which is half the net revenue that a 1 percent sales increase would generate.[13] That means it should be possible for a half-cent sales tax to restore the tax credits or even a quarter-cent sales tax increase to secure a smaller reinvestment into one or both credits via non-recurring means—again, there would be tradeoffs for lawmakers to consider under either option.
Council Should Go Further Than the Mayor on Decoupling and Adopt Static Conformity
Mayor Bowser’s budget proposal would partially and temporarily decouple from select One Big Beautiful Bill Act (OBBBA) tax provisions, raising $78.1 million in FY 2027 and $58.7 million in FY 2028.[14] These are revenue savings far smaller than under DC Council’s enacted temporary decoupling measure, which the CFO estimated would raise $157.6 million in FY 2027 and a declining amount each year thereafter.[15]
The mayor’s proposal delinks from OBBBA’s higher standard deduction provision in 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.
FIGURE 3
DC Council should make permanent more of the decoupling provisions that they approved last year to safeguard precious local dollars, especially as the District 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.[16] 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 make 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 to afford basic needs like food, rent, and childcare during the local economic downturn.
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.[17] It also remains unclear to DCFPI how the CFO is accounting for the net revenue raised in FY 2025 from the emergency decoupling law (i.e., revenue available after the cost of the EITC going to 100 percent of the federal credit), as his office excluded the FY 2025 revenue impact from the updated Fiscal Impact Statement 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.[18] 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.
Other Revenue Proposals in the Mayor’s Plan
DCFPI encourages the DC Council to maintain some of the other tax proposals in the mayor’s budget plan, including eliminating a double tax benefit that some residents receive for taxes paid to another jurisdiction by a pass-through entity and apportioned to them. By requiring these taxpayers to add their apportioned pass-through entity taxes back into their federal adjusted gross income, the proposal increases their taxable income, raising nearly $10.3 million in fiscal year 2027 and a total of $42.5 million over the financial plan. As we’ve seen in previous proposals, the mayor also increases staff at the Office of Tax and Revenue to strengthen tax audits and boost compliance, generating $1.6 million in FY 2027 and nearly $15 million total across the financial plan. Council should also maintain this change.
DCFPI also urges the Committee, alongside the Committee on Human Services, to closely examine other Budget Support Act (BSA) subtitles that significantly ramp up investments in tax abatements programs for developers without concrete evidence the programs are working or are well-designed, as my colleague Shira Markoff’s testimony at the Budget Oversight Hearing for the Deputy Mayor for Planning and Economic Development argued. Lawmakers should also closely vet other subtitles that invest more funding into the Supermarket Tax Incentive Amendment Act and the Workforce Housing Opportunity Amendment Act. For example, before putting an additional $6.6 million toward the supermarket incentive program, the Committee should determine if the proposed changes are well targeted and would increase grocery store access East of the River (EOTR), or if they would sink more money into a program that has failed for years to adequately address grocery store deserts EOTR. And, although the District needs more affordable housing, it is unclear if the Workforce Housing Opportunity tax abatement is well designed and targeted to achieve that end. The abatement only requires developers to ensure that 20 percent of units are affordable to households at 80 percent of median family income and 20 percent of units are affordable to households at 100 percent of median family income, rather than increasing the number of units affordable to lower income families.[19]
Further, the Council should strike the mayor’s proposed reductions to corporate fees in the BSA. These are small compared to the cost of doing business and are unlikely to impact business’s bottom lines or decisions around doing business in DC. For example, the cost for a corporation to change its registered agent would drop by only $15 from $50 to $35. Despite the minimal impact to businesses, all the fee reductions in the BSA will cost the District $12 million over the financial plan.
Thank you for the opportunity to testify.
