MERE MENTION of giving the District a so-called commuter tax is enough to get representatives from Maryland and Virginia in a lather. So there were the predictable howls of protest when Rep. Darrell Issa (R-Calif.), chairman of the influential House oversight committee, recently said there should be discussion of the city’s inability to tax the earnings of non-residents who work within its borders. Resolution of this issue is long overdue, and the parochial interests of the District’s two neighbors really shouldn’t be a roadblock to the city getting the critical authority that all states enjoy.
Mr. Issa, whose committee has jurisdiction over the District, broached the possibility of giving the city taxing authority over non-resident worker income during a hearing last month. “I think we should, after the election, start thinking about how we’re going to deal with the only place that doesn’t have the ability to tax people who earn their income in that place,” he said.
The remark surprised and cheered city officials, who have long complained that large tracts of federal land not subject to local property taxes and Congress’s express prohibition of a commuter tax (a condition for home rule) have resulted in a structural fund imbalance, estimated at $470 million to $1.1 billion each year, that makes it difficult to take care of long-term capital needs and unfairly increases the tax burden on D.C. residents.
Almost immediately, House Minority Whip Steny H. Hoyer (D-Md.) came out swinging, calling the tax unnecessary and vowing to fight it, up to and including pulling federal agencies out of the District. We understand why Mr. Hoyer is opposed; his state — as well as Virginia — would stand to lose millions of tax dollars now collected from residents who work in the District.
But he is on shaky ground in arguing that the tax is not needed because the federal government largely picks up the tab for the nation’s capital. The federal government does pay for the city’s federally controlled court system, and it incarcerates adult prisoners who have committed felonies, but talk of a federal payment that supports the city is myth. An effort in 2004 to establish an account of $800 million for the District’s infrastructure went nowhere, as did a 2005 proposal to tie a federal payment to the costs of state-like services the city provides.
Other misconceptions enter this discussion. The tax generally would not result in an additional tax to people; any tax paid to the District would be credited against the income taxes people pay in their home state. All the money wouldn’t be flowing one way, since Maryland and Virginia have the ability to tax the earnings of D.C. residents who work in their states.
D.C. Council member Jack Evans (D-Ward 2), chairman of the finance and revenue committee, told us he is preparing legislation that would call on Congress to amend the city’s Home Rule Charter so that what is the norm for most of the country — you pay taxes where you work — would apply to the District. He envisions a low tax, 2 or 3 percent; instead of going into the city’s general kitty, the money would be used to lower personal and corporate income taxes. Money would also be earmarked to repair infrastructure that has crumbled because the city lacked the funds. It’s a sensible plan that deserves a fair hearing.