It is a common perception that DC families and individuals pay much higher taxes than residents of the Maryland and Virginia suburbs. Some District leaders argue that high taxes discourage families and individuals from moving into the District or from remaining in the District.
A review of area taxes shows, however, that the perception of extremely high tax burdens is in many ways inaccurate. While the District has a relatively high income tax, it is not substantially higher than the combined state and local income tax burden in Montgomery and Prince George’s counties. Moreover, the District has the lowest property tax rate in the region. And unlike Virginia, DC does not levy a property tax on cars. When the District’s higher income taxes are considered along with its lower property taxes, regional tax burdens appear much more similar.
This analysis calculates the taxes that would be paid by hypothetical families of different sizes and composition at three income levels ‘ $50,000, $100,000, and $150,000 ‘ in the District and in Montgomery, Prince George’s, Fairfax, and Arlington counties in 2002. It includes the major taxes that households pay based on where they live ‘ income and property taxes. The primary findings are:
- Taxes in the District are comparable to taxes in suburban Maryland. For almost all income levels and family types, the tax burden is lower in DC than in Prince George’s County. For example, a married couple with two children and income of $100,000 paid $860 less in the District than in Prince George’s County in 2002. (See charts.)When compared with Montgomery County, the District’s tax burden is lower for some families and higher for others. A married couple with no children and income of $100,000, for example, would pay $390 less in taxes in DC than in Montgomery County. Even in the family examples where District taxes are higher than in Montgomery County, the differences are modest. A single parent with two children with income of $100,000 would pay $290 more in DC than in Montgomery County. For all of the family types included in this analysis, the DC tax burden is never substantially higher than in Montgomery County. The largest gap ‘ $550 for a single parent with two children and income of $150,000 ‘ equals just 0.4 percent of household income.
Comparison of Household Tax Burdens in DC and Suburban Maryland in 2002
- Taxes in the District are moderately higher than in Northern Virginia. This analysis finds that the household tax burdens in Northern Virginia generally are lower than in either the District or suburban Maryland. The differences between taxes in the District and Fairfax County are relatively small, typically less than one percent of household income. For example, the tax burden on a married couple with no children and income of $100,000 is $470 higher in DC than in Fairfax County, an amount that equals 0.5 percent of household income. (See charts.)The gap between taxes in DC and Arlington County is somewhat larger. The tax burden on a single adult with two children and income of $150,000 in DC, for example, would be $2,090 higher than in Arlington County, an amount equal to 1.4 percent of household income. As noted, the tax burden in Arlington County also is the lowest of the five jurisdictions in this study.
- The largest gap between taxes in DC and Northern Virginia is for renters. This analysis focuses primarily on taxes paid by homeowners, but it also calculates the tax burden for a renter household with income of $50,000.[1] It makes the conservative assumption that such households pay no real property tax, even though economic literature suggests that landlords pass at least some of the property tax they pay through rental charges. The tax on DC renters at this income level is roughly the same as the tax on renters in suburban Maryland, but it is nearly $1,000 higher than the tax in either Arlington County or Fairfax County. The difference equals two percent of household income.
In short, the notion that taxes on DC families are uniformly higher than in other jurisdictions is untrue. While the District is not the lowest taxing jurisdiction in the region, it also is not the highest taxing jurisdiction. In many cases, differences in tax burdens between the District and the suburbs are non-existent or modest.
These findings also suggest that taxes are unlikely to play a major role in the decisions families and individuals make about where to live in the Washington region. There are, of course, numerous factors that affect these decisions ‘ such as schools, housing costs, crime rates, or access to retail services. Available evidence suggests that taxes are not discouraging families from living in DC.
- An analysis conducted in the late 1990s by the DC Tax Revision Commission found no evidence that the District was losing residents to the suburbs as a result of its tax burden. A survey of families that moved out of the District in the early 1990s found that departures were not motivated by a desire to seek lower taxes. Moreover, the analysis found that two-thirds of the people who moved out of the District in the early 1990s went to the Maryland suburbs, particularly Prince George’s County, which appears to be the highest-tax jurisdiction in the region.[2]
Comparison of Household Tax Burden in DC and Northern Virginia in 2002
- The District has a substantial high-income population. The 2000 census shows that 11.5 percent ‘ one of nine ‘ District families has incomes of $150,000 or more. This proportion is the third highest among large U.S. cities, higher than in every major city except San Francisco and San Jose. The census data also indicate that the proportion of DC families with incomes above $150,000 is nearly as high as in the Washington suburbs, where 12.7 percent of families have incomes this high. In most other metro areas, by contrast, the percentage of residents with very high incomes is much smaller in the central city than in the suburbs. Thus, it is reasonable to conclude that the District tax burden on higher-income families is not discouraging such families from living in the District.
- The District has experienced a substantial influx of single-person households. The number of non-elderly single households in the District increased by 8,000 ‘ or 11 percent ‘ in the 1990s, while the total number of households in DC declined slightly in this period. Census data show that most single households are renters and have incomes below $50,000. As noted earlier, Virginia taxes are somewhat for lower moderate-income renters, but the number of such renters appears nevertheless to be rising in the District.
The remainder of this analysis provides more details on household tax burdens in the Washington metro area.
Click here to view full report (16pp.)
End Notes:
[1] Since most households at higher income levels own their homes, this analysis does not consider renters at higher income levels.
[2] District of Columbia Tax Revision Commission, Taxing Simply, Taxing Fairly: Full Report, Chapter A.
