THE NEED for the District to revise its tax code has long been apparent. In 2011, the D.C. Council created a commission that, under the direction of former mayor Anthony A. Williams (D), spent 18 months fashioning a package that would make for fairer and more efficient tax policy. So the council is right not to let these sensible recommendations sit on a shelf to collect dust.
A plan devised by council Chairman Phil Mendelson (D) to phase in most of the proposals of the D.C. Tax Revision Commission over the next five years won preliminary approval from the council last week. It is set for a final vote June 17. Among the welcome changes are significant income-tax relief for middle-income households, which are disproportionately burdened under current law, and a reduction in the District’s franchise business tax, which would make the city more competitive with Maryland and Virginia. Less desirable is the proposed increase in the threshold for the estate tax, but we appreciate the logic that the package is a series of trade-offs that work only as a whole.
The council deviated from the tax panel’s recommendation in paying for the tax cuts, rejecting the call for an increase in the sales tax and the creation of a $100-per-employee charge to businesses. It’s disappointing that there was no consideration, or even discussion, of the proposal for the employee fee, which would have produced $45 million a year. City officials long have complained about their inability to collect revenue from those who work in the city and benefit from its services but live elsewhere, so there is merit to broadening the base and sharing the tax burden via a modest fee that has been used successfully by other jurisdictions. No doubt the council was put off by the political risks of a new tax and by the expected pushback from nonprofit organizations. Instead, it opted to redirect revenue that had been earmarked for the streetcar system.
Mayor Vincent C. Gray (D) condemned the move as gutting the streetcar project, but that’s more hyperbole than reality since the project is still set to receive substantial financing. As Mr. Mendelson told us: “When you are leaving over half a billion dollars for a project, it’s hard to say you are killing it.” Streetcars enjoy support in the community and on the council; it’s reasonable to expect that the project will proceed with proper planning. The council proved its commitment through its decision to add funding for a streetcar-related bridge near Union Station.
Of more immediate concern is whether the council will resist the lobbying underway to roll back the reasonable expansion of the sales tax to businesses that have been exempted until now, such as health clubs, yoga studios and car washes. A sales tax adds a small cost, and carving out exemptions for favored businesses is unsound and unfair. Council members need to stand firm against the pressure.