Jack Evans Report

Good and Bad Tax Policy in the New Budget

Last Wednesday, the Council voted to approve an $11 billion budget, once again the largest budget in the history of our city. It should be noted that every other jurisdiction in the country has made tough choices to deal with the lingering fallout of the global recession. But in D.C., our tax collections continue to go up every month.

Even after you take into account all the built-in increases from year to year – raises, inflation and the like – the mayor and Council had an additional $159 million to spend in the 2015 budget.

I agree with many of the allocations of this money. For example, the budget includes increased funding for the arts, for Destination DC and for the DC Economic Partnership. These are tremendous economic drivers for the District and actually bring several dollars of revenue to our treasury for each dollar we spend on them.

I also support increased funding for public education and affordable housing, among other priorities. On the capital side, I was successful in including $10 million in funding to expand green space in Ward 2 with the Dupont Crown Park, located over the Connecticut Avenue underpass north of Dupont Circle.

Fortunately, the budget also includes about $165 million in annual tax relief. Our budget legislation will create a new middle-class income tax bracket of $40,000 to $60,000 and expand the Earned Income Tax Credit for low- and moderate-income workers. By raising the estate tax threshold to twice the current limit, and eventually recoupling it with the federal level at $5.2 million, adjusted for inflation, it also helps seniors and homeowners in the District whose property values have increased.

But with all this extra money in our budget, I am disappointed that the Council would propose to maintain our top income tax bracket at 8.95%, which is among the highest income tax rates in the nation. Not only is it bad policy, it also breaks the promise we made when we originally raised the rate from 8.5% that we would sunset it after four years.

In addition, the Council has proposed two new taxes that I find objectionable: an expansion of the sales tax to gyms and yoga studios and a tax on premium tobacco products.

Taxes are not simply to raise revenue, but also express our policy preferences. With that in mind, why would we want to create disincentives for our residents who want to make healthy choices by joining health clubs, especially when it is clear that we do not need the extra money?

With regard to tobacco, the last time we raised this tax we saw collections actually go down, as residents chose to make larger tobacco purchases in Virginia. The tax at issue today, though, is a tax on premium tobacco products like cigars, which will hurt local small businesses such as Georgetown Tobacco.

Overall, I support the budget even though I do not agree with some of the items in it. Our final budget vote is not until June 11. I am hopeful we will make a few more changes before we put the law on the books.

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Wed, 26 Nov 2014 23:17:10 -0500

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