Gay GOPer, Gay Dem at Odds on Ground-Breaking Tax Cut Plan for DC
Council Majority Backs D.C. Tax Cuts
[Openly gay Republican D.C. Councilmember David Catania (R-At Large) has written an historic tax cut proposal for Washington, D.C., while openly gay Democrat D.C. Councilmember Jim Graham (D-Ward 1) opposes it.]
D.C. Council members today will propose a three-year, $419 million package of income and property tax cuts for District residents and businesses that already has the support of a majority of the council and is winning praise from key Republicans on Capitol Hill.
The bill, crafted by council members Jack Evans (D-Ward 2) and David Catania (R-At Large), eventually would lower the District's top income tax rate of 9.5 percent – one of the nation's highest non-federal levies on personal income – to 6.5 percent, a dramatic reduction that would put the city in line with the tax rates in Maryland and Virginia.
And while D.C. Mayor Anthony A. Williams reacted coolly to the proposal yesterday, Catania said that nine of 13 council members – a "veto-proof" majority – have lined up in support of the package and are eager to take bold action that would make the District a more attractive place to live and do business.
Rep. Thomas M. Davis III (R-Va.), chairman of the House Government Oversight subcommittee on the District, was quick to praise the council's plan.
"The concept in terms of reducing taxes is the way you make the city competitive again," said Davis, whose support is key to getting the measure through Congress, which approves the city's annual budget. "This has been proven to work in other areas. You cut taxes and cut regulations and you produce more jobs."
Under the proposal, the income tax rate for D.C. residents who make more than $20,000 a year would be reduced 1 percentage point a year for three years, bringing the rate to 6.5 percent. The top tax rate in Virginia currently is 5.75 percent. In Maryland, the top rate is 5 percent, although some suburbs impose an additional county income tax that pushes the combined Maryland rate above the proposed D.C. rate.
A. Scott Bolden, past president of the D.C. Chamber of Commerce and a Washington lawyer, said the council's proposal is a great idea.
"If we can afford it, it is an outstanding initiative because it captures the solution to the District's real problem, and that is . . . attracting and retaining residents and businesses," Bolden said. "That is the key to remaining fiscally stable."
Williams acknowledged in an interview yesterday that he could find himself politically isolated on the issue, as residents and businesses hungry for a tax cut join members of Congress in backing the council. For the council – which often has appeared to be a secondary player in city politics since losing some of its influence to the mayor and the presidentially appointed financial control board – the tax-cut package represents a chance to reestablish itself as a political force.
Williams, who has proposed a tax cut for small businesses, said he supports the concept of a broader local tax cut. But he said he first wants to ensure the District's fiscal stability, have the federal government cover more D.C. expenses, and make sure the District has enough money to fill potholes, repair schools and improve services.
"We have to keep in mind we have a fragile situation here," Williams said, referring to the city's recent recovery from a financial crisis. "We worked hard to get to where we are and don't want to retreat. ... We have to do things in a responsible way."
The mayor also expressed skepticism about whether a personal income tax cut would attract newcomers or stem the flow of residents from a city that a few decades ago had more than 700,000 residents, but that now has a population closer to 500,000. He said that above all, most D.C. residents want a city that works.
"I'm favorably inclined toward tax reduction," he said. "But, at what cost, at what benefit, and what can we afford?"
But Williams is outnumbered on the issue, at least for now. Council member Sandy Allen (D-Ward 8), who represents some of the city's poorest residents, and council member Kathy Patterson (D-Ward 3), who represents its most affluent neighborhoods, are co-sponsors of the tax-cut bill.
Under the plan, D.C. residents at lower income levels would see their tax rates slashed by 3 percentage points as well. For example, the top income tax rate for individuals who make $10,000 to $20,000 a year would be cut from 8 percent to 5 percent.
"The overriding goal I have for this is to change the perception and reality that the District of Columbia is a high-tax jurisdiction for residents and businesses," said Evans, chairman of the council's committee on finance and revenue. "Reducing the rates to levels competitive with Maryland and Virginia will, without a doubt, stimulate economic growth."
For businesses, the District's income tax rate would be slashed from 9.975 to 6.5 percent over three years, putting the city's rate between Virginia's 6 percent and Maryland's 7 percent. Commercial property tax rates in the city would be simplified and reduced by about 14 percent, and the property tax on residential rental property would be cut by 37 percent.
Council member Vincent Orange (D-Ward 5) said the city's projected budget surplus for this year, which exceeds $200 million, is an ideal way to fund the first year of the tax cut. Like Evans and Catania, he said projected surpluses could be used to fund the next two years of the plan.
Davis said he would support a request from the council and the mayor to lift restrictions on how the District can use its budget surplus this year. Under current law, the city would be required by Congress to use its surplus to reduce outstanding debt and pay other expenses.
Davis said the mayor and council members have to work out their differences on the tax cut. "It has to be blessed by the mayor," Davis said. "He is going to have to roll up his sleeves and look at the numbers and tweak it a little bit so he can have his signature on it."
Rep. Constance A. Morella (R-Md.) described the tax-cut plan as "very appealing" and said she would support such a measure.
Curtis Etherly, staff director for government relations at the Greater Washington Board of Trade, also was enthusiastic. "This is exactly the kind of aggressive tax relief that the District needs," Etherly said.
But council member Jim Graham (D-Ward 1) said he will oppose the tax-cut package, saying that although the city posted more than $500 million in surpluses over the last two years, there is no guarantee that such economic good fortune will continue.
"Somebody is going to have to explain to me how you cut your income without cutting your expenses and without depriving the D.C. government of the ability to meet increased needs," Graham said. "I want to support small businesses, but I want to know how we do the rest of this."
A council hearing on the proposal is scheduled for April 26. Meanwhile, Moody's Investors Service Vice President Kathleen Holt warned that a big D.C. tax cut funded by projected surpluses could hurt the city's chances of having its "junk bond" rating raised, a boost that would lower the cost of borrowing. "This is something that would have to be very, very carefully pursued," she said.