Giveaway
The D.C. Council's plan for tax relief is poorly thought-out.

Tuesday, May 15, 2007

DISTRICT OFFICIALS got good news last week with a forecast of millions of dollars in surplus revenue for this year and next. It's understandable that D.C. Council members want to use some of this good fortune to ease the tax burden of the city's residents. But some proposals under consideration would not provide relief where it's most needed.

The council today is set to vote on a budget bill with a wide-ranging package of tax relief measures totaling $47 million. Among them is a proposal that would cap the increase in real estate taxes at 5 percent per year, a change from the current 10 percent. Supporters argue that because of rising assessments, homeowners are faced with bills that soar even when their incomes don't. They argue that lowering the cap is the best way to keep people in the city.

But District homeowners already pay some of the lowest property taxes in the region. A study by the D.C. Fiscal Policy Institute showed that the average property tax bill on a $600,000 home in the city was $900 lower than in Montgomery County (which has a 10 percent cap) and $2,000 lower than in Fairfax County (which has no cap). There also are inequities in a cap. New homeowners, for instance, don't get much benefit, so people who live side by side in identical houses may pay very different amounts. Moreover, the cap skews to the benefit of those in homes with the highest market values. As the institute calculated, homes assessed at $750,000 or more would receive 53 percent of the benefits of a 5 percent cap, even though they represent just 21 percent of homes. Homes assessed at $500,000 or less, 59 percent of homes in the city, would get 29 percent of the benefits. Wards 2 and 3 would get the most, Wards 7 and 8 the least.

A better way to offset rising assessments is to increase the homestead deduction or cut the tax rate. D.C. Mayor Adrian M. Fenty (D) called for a cut in the rate from 88 cents to 86 cents. The Fiscal Policy Institute estimated that that would translate into nearly half of D.C. homeowners having lower tax bills in 2008 than in 2005. Lowering the rate allows the city to adjust as financial circumstances change. We would think politicians would like this tactic, since it lets them boast about cutting taxes rather than have the savings come from an automatic cap.

Because of the city's expected windfall, council members appear eager to sign on to a grab-bag of tax cuts rather than prudently putting more money away for the future. They figure they have enough revenue to give something to everyone -- from relief for small businesses to reducing the estate tax. What they really should be thinking about is helping those with the biggest needs and not necessarily those with the loudest complaints.