wpostServer: http://css.washingtonpost.com/wpost2

Most Read: Local

Posted at 05:53 PM ET, 05/20/2011

Council could tax bonds to avoid D.C. income tax hike

With mere days until the D.C. Council’s budget vote next Wednesday, it appears that Chairman Kwame Brown (D) is prepared to broadly restore cuts to city social programs — including homeless services and temporary assistance to the disabled. But how to pay for it remains a matter of debate.

Several council members who have met with Brown in the past two days said that he is strongly considering a proposal to charge income tax for the first time on municipal bonds not issued by the District, in lieu of increasing the income tax on residents earning more than $200,000 per year, as Mayor Vincent C. Gray (D) has proposed.

States typically offer a tax exemption only on public bonds issued within their own borders, but the District, dating back to the pre-Home Rule days when it didn’t issue bonds of its own, has offered a broad exemption for all municipal bonds.

The proposal is expected to generate $13.4 million for the city in fiscal 2012, and considerably more in subsequent years. Gray is holding fast to his plan to increase the income tax rate, which is expected to raise more than $18 million, and he has asked council members to support the hike.

The bond proposal could be politically hazardous. In 2002, the Council approved taxing out-of-state bonds but serious opposition from bondholders — including financial professionals and retirees who invested in tax-free bonds — led to a reversal. In 2004, Mayor Anthony A. Williams again proposed the measure, but an increase in revenue estimates meant that it was not included in the final fiscal 2005 budget deal passed by the Council.

Brown said through a spokeswoman that a bond tax is “speculation” and that budget terms remain “in flux” ahead of next week’s vote.

According to members, Brown indicated in meetings that he is considering eliminating a proposal to charge sales tax on theater and other live entertainment, replacing it with a new sales tax on armored cars, security services and private investigations, which is already assessed in Maryland. Other savings — perhaps $20 million or more — are likely to be found in a budget maneuver shifting personnel between the city’s operating and capital budgets.

What is unclear is which cuts will be restored in the council’s first budget vote Wednesday, and which might be included after new revenue projections are released in June. Those projections, many members expect, will add tens of millions of dollars to the city’s bottom line.

By  |  05:53 PM ET, 05/20/2011

 
Read what others are saying
     

    © 2011 The Washington Post Company