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Posted at 07:49 PM ET, 06/13/2011

Income tax hike still possible as D.C. budget vote looms

Tomorrow the D.C. Council will take its final vote on next year’s budget, and much is still to be worked out.

Two amendments likely to be offered tomorrow aim to roll back the council’s decision last month to tax non-District municipal bonds for the first time. One of them includes an income tax increase, previously thought to be off the table.

The first amendment, offered by Jack Evans (D-Ward 2) would preserve the existing income tax exemption on bonds already held by District residents. Public bonds issued outside the city would be taxed starting Oct. 1. To make up for the lost revenue, Evans would place the bond tax “buyback” first on the priority list for spending new revenue expected to be certified later this month by city finance officials.

A competing amendment, offered by Mary Cheh (D-Ward 3) would also preserve the existing exemption for currently held bonds while eliminating the exemption going forward. But rather than use anticipated revenue to pay for it, Cheh is proposing to create a new 8.9 percent income tax bracket for those earning $400,000 or more. The bracket would sunset after the 2015 tax year.

Cheh said she supports Evans’s amendment and will only move forward with her own amendment if the other fails. Cheh was one of eight council members to vote against a budget amendment last month that would have applied the 8.9 percent rate to those earning $200,000 or more.

It is unclear whether the members who supported the previous income tax hike will support this one. Tommy Wells (D-Ward 6) said he was concerned about the sunset provision and the lower threshold. In forging the original budget deal, Chairman Kwame R. Brown (D) made avoiding the income tax hike a top priority.

The other potentially contentious budget provision is the priority list for the anticipated revenue. A draft budget bill circulated Friday added two new items at the top of the queue: First, $32 million for the managed-care providers who run the city’s Medicaid and HealthCare Alliance programs; second, $12.5 million for school nurse expenses that the District originally expected to charge to Medicaid.

If the changes are adopted, that spending will jump the line over previously negotiated priorities, including $10.8 million for police officers and $12 million for affordable housing.

By  |  07:49 PM ET, 06/13/2011

 
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