Panel to issue final report on recommended D.C. tax changes before holidays

November 19, 2013

Over nearly a year and a half, a select group of D.C. officials, advocates and civic leaders has spent untold hours inside a Southwest Washington conference room, examining potentially sweeping changes to the District’s tax code.

The quiet work of the D.C. Tax Revision Commission is wrapping up, and months of fact-finding about how the city raises nearly $6 billion a year in revenue is giving way to more pointed debates about ways to adjust income, sales, property and business levies.

But while some ideas enjoy broad support — notably, income tax relief for the middle class and higher tobacco taxes — some of the most ambitious proposals appear to be off the table because of a lack of consensus on the commission, as well as fiscal and political realities.

Former mayor Anthony A. Williams, who is leading the commission at the request of Mayor Vincent C. Gray (D), said the group expects to undertake final deliberations in coming weeks, with a final report issued before the holidays.

The expectation is that at least some of the commission’s recommendations will be incorporated into the city’s fiscal 2015 budget, which will be taken up by D.C. leaders in the spring. But that is likely to depend on the price tag for the recommendations; it could be difficult to win support for tax cuts costing tens of millions of dollars or more among the lawmakers who must hammer out the budget.

“We want to operate within the realm of realism, if possible,” said Williams, who said the panel may recommend “tranches” of recommendations dependent on how much funding becomes available.

The commission was created by the D.C. Council in 2011, amid recession-fueled budget debates and ongoing questions about how the city could set its tax rates to be competitive with those of surrounding jurisdictions and fair to city residents while also raising enough revenue for city programs.

A list of 63 discrete recommendations is under review, ranging from modest changes, such as tweaking the application of personal exemptions on income tax returns, to more sweeping initiatives, including cutting commercial property tax rates by a half-
billion dollars.

As deliberations at the commission’s Monday meeting revealed, it is much easier to find consensus on the smaller initiatives than the larger ones. Only eight of the 63 recommendations have been judged by the commission’s staff to have the broad support of its members, while 26 have seen little consensus and are thus unlikely to make it into the final findings.

The remaining items — including the massive commercial property tax cut and a passel of business tax cuts — are in limbo. Among the proposals under discussion is finding a way to make large tax-exempt nonprofits, including universities and hospitals, compensate the city for the costs of city services they incur.

An approach used in some other cities and states, a negotiated “payment in lieu of taxes,” has proved politically controversial in the city. As an alternative, members have discussed a per-
employee “local services fee” on employers, which could raise as much as $50 million.

Likewise, a total repeal of the city’s estate tax — which would put the District on par with neighboring Virginia but would cost $38 million — has not garnered any support, but a proposal to raise the threshold for the application of that tax, at a cost of less than half as much, has gotten some support.

Members on Monday discussed how best to target income tax relief at middle-class residents, whether through an increase in the standard deduction or a rejiggering of the city’s income tax brackets. More time was spent discussing how best to “send a signal” to the business community that the District is a good place to operate, whether by cutting some corporate taxes or examining the commercial property tax.

Mark D. Ein, an entrepreneur and investor who sits on the panel, said it is unrealistic to expect radical suggestions in the end. “Where we are today is a result of the city government reflecting what the people wanted,” he said. “Given that, you’re not likely to find radical ideas where people say, ‘Gee, I hadn’t thought of that.’ Most of the ideas have been proposed or dismissed before.”

But, he said, “there might be a package that can make this a fairer, better system.”

Mike DeBonis covers local politics and government for The Washington Post. He also writes a blog and a political analysis column that runs on Fridays.
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