DC4D Testifies for Fair Taxation before the Committee of the Whole (May 12, 2014)
Dan Wedderburn testified for DC for Democracy before the DC Council’s Committee of the Whole on May 9, 2014 regarding the Fiscal Year 2015 Budget Request Act.
Mr. Chairman, members, my name is Dan Wedderburn. I chair the Government Reform Committee of DC For Democracy. DC For Democracy (DC4D) is a leading non-aligned progressive organization in the District with over 500 members.
Three longstanding myths about DC were dispelled by tax experts invited by the Tax Commission to present their findings. The first myth is that DC has a progressive tax system. When all taxes are included (income, property, sales taxes). The facts are DC has a regressive system. Data from the Chief Financial Office shows this too.
A second myth is that DC residents pay far higher overall taxes than the surrounding areas in Virginia and Maryland. Residents here pay lower overall taxes.
The third myth is that DC businesses pay far higher taxes than our neighbors. The reality is that no significant differences exist. Moreover fully two-thirds of DC businesses don’t even pay the 9.975% business tax rate. Further, Maryland owners of DC businesses receive a 100% credit on their return.
Another longstanding myth — really a fear — is that DC with the highest 8.95% tax rate on individual incomes will cause the wealthy to move to Virginia. No data at all exists to support this. Since this rate went into effect, CFO data show property values continue to rise rapidly in our wealthy areas including Foxhall, Spring Valley, Wesley Heights, Georgetown and Forest Hills. Nor is their evidence of an increase in ‘for sale’ properties.
Maintaining this tax rate instead of reducing it to 8.5%% means households with taxable income of $1 million will pay about $1,950 additional. Taxable income is much less than total income. Those with taxable income of $1.5 million will pay about $3,450 more. Who at such income levels and beyond will move to Virginia with its suburban sprawl and 7 day a week traffic gridlock? The tangible and intangible benefits of living in DC far outweigh these increase taxes.
The Commission wants to increase the $1 million exemption on estate taxes to the $5+ million exemption at the Federal level. The Federal exemption combined with a large reduction in the estate tax rate became law due to efforts by the Republic Right against deep opposition by Democrats and the President.
The District ranks 3rd among the largest cities in terms of income inequality. This is the truly great issue of our time. In a city where elected officials and candidates all claim to be progressives, none can claim this mantle by supporting the massive shift in wealth that’s well underway. It is a huge threat to government by and for the people.
If DC is to become the great city we aspire to, nothing is more important than to focus on ways to substantially reduce the burden on the poor, low income earners and, most of all, our thousands of at-risk youth. This should be a top priority in the fiscal 2015. The Tax Commission made many sound recommendations that should be adopted, including moving significantly but not completely to eliminate the regressive tax system, raise the standard deduction and personal exemption to Federal levels, create a lower tax rate for some middle income earners and expand the EITC credit for childless workers.
The Mayor’s Budget also asks for some sizable increases to meet these pressing needs. DC For Democracy believes the city is in a financial position to go much further. For example, let’s start now to provide funds for year round housing for the homeless, and to provide expanded tutoring and mental health programs, especially for at-risk children. DC4D also supports specific efforts by the Fair Budget Coalition for more funds to support programs for the needy.
DC4D Testifies for Fair Taxation in the DC Budget (May 8, 2014)
Testimony of Kesh Ladduwahetty, DC for Democracy before the Committee on Finance & Revenue regarding the Fiscal Year 2015 Budget on May 7, 2014.
My name is Kesh Ladduwahetty. I represent DC for Democracy, a progressive, all-volunteer membership organization with over 500 members. We join many others in the Fair Budget Coalition to ask the Council to maintain revenues in the next fiscal year in order to fund critical safety net programs such as those that serve the homeless.
The Council should not endanger these critical programs by making unwise tax cuts. The Council should keep the top income tax rate of 8.95% for those making over $350,000 annually, and maintain estate taxes at their current level. By doing so, the Council would also prevent our unfair and regressive tax code from becoming even more unfair and more regressive.
We live in an era of extreme and rising inequality that has sparked fierce political debate. Our metropolitan region suffers from the fourth highest income inequality in the nation. According to the Office of the Chief Financial Officer, the wealthiest 1% of DC taxpayers enjoy almost 25% of the adjusted gross income. Given this level of extreme imbalance, the public would be outraged were the Council to exacerbate it further by cutting taxes for the wealthiest households.
I understand that one reason people propose cutting the top income tax rate is to make DC competitive with surrounding jurisdictions. Much is made of our top marginal tax rate of 8.95% compared to Virginia’s 5.75%. It makes one wonder why so many extremely wealthy people choose to live in DC. In fact, the richest 1% of DC residents, who average $2.4 million in yearly income, are significantly wealthier than their counterparts in Virginia, who average $1.3 million.
Why is this so? I think it is partly because although our top marginal income tax rate is higher, actual taxes paid are lower in DC than in Virginia. According to the Office of Revenue Analysis (see page 4), a typical family of 3 making $150,000 a year would pay just $13,157 in total DC taxes (sales, property and income), compared to $13,381 in Fairfax County, $13,471 in Alexandria City, and $13,873 in Arlington County. The tax burden in Montgomery and Prince Georges Counties is even higher. Unfortunately, the report does not provide the data for families making more than $150,000, but given that DC families at every income level in the report pay lower taxes than in the surrounding counties, there is every reason to assume that that this holds true for the wealthiest households as well.
The data is clear: marginal tax rates are not a good indicator of tax burdens. It makes far more sense to look at actual taxes paid. By this more meaningful measure, DC is not only competitive, it is the most attractive tax jurisdiction for people of all income levels in the metropolitan core.
If anybody needs and deserves help, it is not the wealthiest DC residents, but our low- and middle-income families. The Council should support the Mayor’s proposal to create a new middle-income tax bracket with lower rates. The Council should also fund some items on the Mayor’s “wish list,” such as the expansion of the EITC to childless workers, and raising the standard deduction and personal exemption. These are the kinds of fair and targeted tax cuts that the public would welcome from the Council this fiscal year.
In closing, we urge the Council to raise the funds necessary to address critical human needs such as family homelessness in the next fiscal year. Maintain the top income tax rate at 8.95% and maintain estate taxes at their current level. Provide tax relief that is targeted to those who truly need it. By doing so, you will demonstrate to the public that the Council is willing to take a first step towards a fair and progressive tax structure. Thank you.