D.C. Tax Scheme is Reaganomics Reborn

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The D.C. Mayor, Council, and Control Board have now apparently reached a consensus on the budget to be sent to Congress. A dramatic new element in this legislative package is a tax cut plan for residents and businesses. This is a scaled down version of The Tax Parity Act of 1999, proposed by Evans and 8 other Councilmembers, which was opposed by Jim Graham and Phil Mendelson. A broad coalition including child advocates and the Metro D.C. Labor Council joined in opposition to the original Council bill. Nevertheless, the new “compromise” legislation will quite likely reduce badly needed revenue for social services, especially if the Metro area economy cools off in the next 3 years.
There is no evidence that these tax cuts will attract a bigger tax base (Tax Revision Commission, Center on Budget and Policy Priorities). And no surprise, it will give most of the income tax benefit to the wealthy. Cuts in business taxes will continue the policy of not including any criteria that progressives have been pushing, namely paying a living wage, employing D.C. residents, environmental sustainability, etc. This is yet another dose of Reaganomics from our Council.
Meanwhile, the proposed budget for FY 2000 fails to restore most of the catastrophic cuts in the District’s “safety net” made in the last few years, forced by the austerity regime of the Control Board with the unfortunate compliance of the City Council and Mayor.

Our present local tax structure is regressive. While their taxable income has been booming, the wealthy continue to pay a smaller percentage of their income in local taxes than do low and middle income brackets.

The proposed tax cut legislation will continue this pattern of regressivity. It will be implemented in steps over five years. To compare impacts, the Institute on Taxation and Economic Policy computed the tax cuts fully phased-in to 1999. The top 1% in, averaging $1.035 million, will get a decrease of 0.9% of their income ($8,820) in their income tax payment, while the lowest 20%, averaging $8,500, will get a 0.6% decrease (a mere $50). The top 20% income bracket (average income greater than $89,300) will get 58% of the total tax cut. The only improvement over the original Council bill is the slightly higher cut going to the middle 20% (averaging $31,900) and fourth 20% (averaging $47,200) brackets who will get back 1.3% ($420) and 1.8% ($860) of their income in tax cuts.

It is evident that a significant fraction of the $450 million budget “surplus” for fiscal year 1998 exists because of hurtful budget cuts in services for our children, poor, elderly and disabled. We have been told these cuts were unavoidable to balance the budget. But consider this. In 1996, D.C. residents making over $100,000 had a taxable income of $3.66 billion (Source: IRS; $624 million above 1995 and now likely over $5 billion), and this does not include income of tax cheaters who fraudulently claim residence outside the District (estimated by the deputy CFO to be $100-200 million/year, which includes uncollected business taxes; Washington Post, 1/29/99). A mere 2% increase in taxation of their income would generate $100 million in revenue! (And they would get back a portion in the federal deduction offset). This would insure both real tax relief for low/middle income residents and the guarantee of increased revenues to restore and expand our safety net.

The only way to do both is to modestly raise the tax rates on the wealthy, who have been steadily moving into the District in the last decade, despite the lower tax rates of surburban Maryland and especially Virginia (Washington Post, 3/3/97, 3/27/97). D.C. taxpayers in the greater than $100,000 bracket increased from 12,000 to 18,000 in a decade (IRS statistics). It is absurd to argue that wealthy D.C. residents will leave the District if they are required to pay slightly higher rates, given the advantages of living here, namely lower commuting costs and time, cultural opportunities etc. Lower tax rates on low/middle income residents will in contrast encourage them to move back into the District, reversing the trend of the last decade. Reducing the income gap and “misery index” in the District would benefit the wealthy as well as everyone else by reducing crime, stimulating consumer spending and reducing class/racial polarization.

The D.C. income tax should be eliminated for the $20,000 and under bracket, a measure with little impact on total revenues, which could be more than made up by higher rates on the wealthy. The recommendations of the Tax Revision Commission are in the right direction but laughably modest (the lowest 20% bracket would pay 1.9% less, while the top 1%, $415,000 and above would pay 0.1% more!). The regressive sales taxes on clothing and other essentials should be reduced.

Commercial and residential property tax rates should be assessed at their true market rate—an objective of Initiative 51, passed overwhelmingly by D.C. voters. SEIU Local 82 economists estimated several years ago that a 0.5% increment in the big commercial property tax rate (making it comparable to other major cities) would generate $166 million in revenue a year. Fair assessment alone would provide some $40 million a year in additional revenue. The Council has postponed the implementation of Initiative 51, in line with their craven posture to the Control Board and Board of Trade.
Instead of so-called tough love for the poor, which has amounted to callous indifference, we need “tough love for the rich,” that is sharing the wealth of our community for meeting basic human needs, improving the quality of life of all, whatever their income or neighborhood. We should tap the more than adequate resources from within the District.

We are fully empowered under the Home Rule Charter to revise our own tax code to guarantee the necessary revenue to meet basic human needs. Lets fight for a District tax restructuring plan that reduces the income gap. Yes, such legislation would also require Congressional approval, until we achieve our full democratic rights under statehood. While voting representation in Congress is long overdue, only statehood will insure local budgetary control.

Up to now our City Council and Mayor have approved austerity budgets recommended by the Control Board. Isn’t it time for our elected officials to change course and stand up for our most vulnerable residents as well as providing tax relief for low and middle income residents? And if they don’t , why not consider electing people who would? Only a lot more political education and organizing from the grassroots can make these goals a reality.

David Schwartzman, a professor at Howard University, is Tax and Budget Deputy of the D.C. Statehood Party, and a member of the D.C. Economic Human Rights Coalition. Contact him at 829-9063, dwslichen@hotmail.com