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Posted at 02:55 PM ET, 08/10/2011

Wells revises position on D.C. bond tax

D.C. Council member Tommy Wells has revised his position on the city’s new tax on out-of-state bonds, saying it should not be assessed on current bondholders. Instead, he wants to raise the income tax on residents who earn more than $350,000 annually.

Wells (D-Ward 6) was a key architect of the controversial new tax that applies the city’s 8.5 percent income tax on income generated from municipal bonds from other states. But Wells is now urging that that tax only apply on future purchases of out-of-state bonds, even if it means more political headaches for his colleague, Council member Mary M. Cheh (D-Ward 3).

The tax, slated to take effect Oct. 1 and be assessed on all income generated after Jan. 1, will affect about 20,000 District residents, many of whom are retirees. Many holders of out-of-state bonds have decried the move, saying it’s unfair to tax them on an asset that was tax-free when they purchased it.

To try to stave off the discontent, the D.C. Council agreed in early July to delay the collection of the tax for one year. But Mayor Vincent C. Gray (D) vetoed the move, saying he was concerned over how the city would absorb its estimated $13 million cost.

Instead, Gray has suggested that the council raise the income tax from 8.5 percent to 8.9 percent on residents who earn more than $350,000 annually. Gray also wants a grandfather clause so the bond tax would not be assessed on existing out-of-state bond holders.

When D.C. Council Chairman Kwame R. Brown (D) first proposed the bond tax in May, Wells played a key role in writing it into the city’s fiscal year 2012 budget.

Brown initially proposed the tax be temporary, but Wells successfully pushed an amendment to make it permanent to generate continued revenue. Now, however, Wells has told worried bondholders he will support efforts to grandfather them in.

“I realize this has a major impact on retirees dependent upon municipal bonds from other jurisdictions,” Wells wrote to Chuck Ludlam, a Ward 3 resident who fears the tax could undermine his retirement income.

In the e-mail, Wells also appears to be ratcheting up the political pressure on Cheh to go along with the income tax hike, offering insight into the emerging rift between colleagues.

In wealthy Ward 3, both the bond tax and income tax increase on the high-wage earners carry political risks for Cheh.

“Your council member will be key on the success of this proposal as the council is very divided,” Wells wrote to Ludlam, a retired federal worker. “

Ludlam, who represents about two-dozen bondholders who have been lobbying the council on the issue, called Wells “a classy guy” for shifting his position.

“We have stunning evidence here that Council member Wells can listen to new points of view and then change his position on a very public issue,” Ludlam said. “You don’t see this very often with politicians.”

By  |  02:55 PM ET, 08/10/2011

 
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