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Posted at 02:15 PM ET, 09/20/2011

D.C. Council approves tax hike for high earners

 The D.C. Council voted Tuesday to raise income taxes on residents who earn at least $350,000 annually, capping off a heated debate that revealed a deep philosophical divide on the city's chief legislative body.

In the 7 to 6 vote, the council agreed to raise the rate from 8.5 percent to 8.95 percent on about 6,000 District residents who have more than  $350,000 in annual in taxable income.

But the council agreed the new top tax bracket will sunset in four years. Mayor Vincent C. Gray (D) is expected to allow the increase to become law.

The vote, a priority of liberal activists, allows the council to delay the imposition of a new tax on out-of-state municipal bonds until early next year. But with the proposal slated to raise $106 million over four years, a vocal minority put up a fierce three-hour fight to block the tax increase.  They noted the city’s chief financial officer reported Friday that the District will end fiscal year 2011 with an $89 million surplus.

"This is lazy government, this is ideologically driven, this is agenda driven," said Council member David A. Catania (I-At large), who referred to the tax increase as a "joke."

In a rare alliance that underscores the unusual dynamics on the council, Council member Marion Barry (D-Ward 8) joined Catania in speaking out against the increase. Barry, who admitted he's rarely met a tax increase that he didn't support, accused Council member Mary M. Cheh (D-Ward 3) of trying to sneak a tax increase past her wealthy constituents in Upper Northwest.

“She wants to tax those people in her own Ward 3,” said Barry, expressing concern the bill was brought up for vote without more input from the public.

But Cheh and Council member Phil Mendelson (D-At large), another sponsor, said they had little choice but to push for the tax increase because residents were complaining about the new tax on out of state bonds. The new bond tax will now only be assessed on out-of-state municipal bonds purchased after Dec. 31, 2011.

"This bill is not about raising taxes, it's about swapping taxes," Mendelson said."I believe this is good policy. I think it's good that our income tax becomes more progressive."

Council member Jim Graham (D-Ward 1), who also voted for the bill, argued the increase would restore more fairness to the tax code. Currently, all District residents who earn $40,000 or more pay the 8.5 percent rate.

Earlier in the year, Graham noted the council slashed tens of millions of dollars from social service programs to help balance the budget.

"How many children don’t have shoes? How many don’t have an evening meal?" Graham said. "Lets say to the wealthiest, give us a hand."

Council member Harry Thomas Jr. (D-Ward 5) noted the increase would only add $740 a year to the tax bill of someone who earns a half-million dollars annually.

"That is one-seventh of 1 percent of their income spread amongst those who can do it most," Thomas said. "That is very important in a city that is clearly a city of the haves and have nots."

But Council member Muriel D. Bowser (D-Ward 4) and other opponents argued it was unfair to raise taxes when the city budget has grown by nearly $1 billion since 2008. At one point, the debate grew so personal that Council member Jack Evans (D-Ward 2) referred to the council as "Alice in the Wonderland."

"This council is out of control," said Evans, who voted against the increase. "You can’t run a government like this."

By  |  02:15 PM ET, 09/20/2011

 
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