D.C. Mayor Vincent C. Gray hit the campaign trail Monday to try to rally public support for his proposal to slash capital gains taxes on District residents who invest in start-up technology companies, which the mayor said are crucial to the city’s long-term economic prospects.
Gray toured Fortify.vc, a K Street company helps tech start-ups get off the ground, alongside other business leaders pushing for the tech-sector incentives bill. Gray also toured Dupont-Circle-based Acceleprise, another accelerator program
The proposal, which the D.C. Council will consider Wednesday, would establish a 3 percent capital gains tax on investments by District residents in District-based technology companies. The District’s current capital gains tax rate is 8.95 percent, which Gray argues places the city at a disadvantage in competing against Maryland and Virginia for technology jobs.
After touring Fortify.vc, which launched with the help of a $100,000 grant from the city, Gray urged the council to approve his proposal.
At times sounding like a conservative economics professor instead of a liberal Democratic mayor, Gray said the tax cut is needed to create jobs and generate revenue for the city. He spoke extensively about his view that targeted tax cuts lead to economic growth, more jobs and higher revenue for the city.
“I believe the tech sector is the District’s economic future,” Gray said. “I believe the tech sector is absolutely crucial for our city.”
Gray noted that District-based Living Social, an online marketing technology venture, grew from less than a half-dozen to more than 1,000 employees over the past five years. In June, over the objections of progressive activists, the D.C. Council approved nearly $33 million in tax breaks to keep the company from relocating to the suburbs.
The progressive D.C. Fiscal Policy Institute is now trying to torpedo Gray’s more far-reaching proposal, labeling it a tax cut for the wealthy.
“When taxes are cut … that reduces the amount of money available for important public assets like schools, parks and transportation,” Ed Lazere, director of the Fiscal Policy Institute, wrote in a blog post Monday.
Coming amid the broader national debate over taxes playing out in the presidential contest, council officials say they are not sure whether Gray has the votes to get his proposal approved. Some council members say they would prefer that the proposal first be considered by the new Tax Revision Commission, chaired by former council member Anthony Williams.
But Gray put forward a forceful defense of the bill.
Instead of costing the city money, Gray said he expects the tax cut to generate revenue by encouraging more technology companies and start-ups to locate in the city. The legislation also expands existing city-recognized technology corridors to all commercial neighborhoods.
“It isn’t an effort about giving away anything, its about making strategic investments for our city,” Gray said. “Lets face it, we are not competing with Virginia and we are not competing with Maryland.”
The capital gains tax rate in Maryland is 5.5 percent. In Virginia, the rate is 5.75 percent, but that state assesses no capital gains tax on investments made in certain Virginia-based technology companies, Gray said.
But Gray’s efforts to get the bill approved by a liberal council could be complicated by the broader ongoing national debate about tax policy playing out in the presidential race. Two weeks ago, Gray was a delegate at the Democratic National Convention, where numerous speakers decried tax cuts for businesses and the wealthy.
When asked how he reconciled the national debate with the local one, Gray said he “isn’t talking about cutting taxes for a whole bunch of firms that already exist in the District of Columbia.”
“We are talking about an opportunity to enhance investments in the tech sector,” Gray said. “It isn’t as if we are getting the money now… 3 percent of something is certainly better than 8.95 percent of nothing.”