Higher Taxes in District Likely
Tentative Approval Given to Sales, Gas And Cigarette Rates

By Tim Craig
Washington Post Staff Writer
Thursday, July 30, 2009

The D.C Council tentatively agreed to increase the sales, gas and cigarette taxes Wednesday after members determined that spending cuts alone would not resolve a projected $662 million budget shortfall over the next three years.

The agreement followed hours of heated debate about how much District residents could afford to pay to spare some services from deep cuts.

If approved Friday, when the council formally meets, the tax increases would raise about $50 million annually for the city as it struggles to respond to the national recession, which has caused property values to plummet and unemployment to rise.

The proposal would increase the sales tax from 5.75 percent to 6 percent. The city's 20 cent-a-gallon gas tax would rise by 3.5 cents.

The increases would make the District's sales and gas tax rates equal to those in Maryland but higher than Virginia's.

The proposal to raise the cigarette tax by 50 cents, to $2.50 a pack, would make the District's levy the sixth-highest rate in the nation, according to the American Lung Association. A pack of cigarettes in the District would cost about $7.50 after the increase took effect in October.

"We just can't cut our way out," said council member Kwame R. Brown (D-At Large.) "The budget should not be balanced on the backs of the low income . . . and I think some taxes are necessary so everyone shares in the burden in reducing the budget deficit."

The likely tax increases are in addition to nearly $100 million in proposed spending reductions that the council also tentatively agreed on this week. Mayor Adrian M. Fenty (D) has also proposed $250 million in spending reductions and other savings.

D.C. Council Chairman Vincent C. Gray (D) said he wanted a budget that addresses the city's long-term financial challenges. "We could have resolved this with gimmicks on the first day, but I refused to do that," Gray said.

Although there could be changes before the final vote, council members have agreed to eliminate hundreds of positions, curtail the hiring of new police officers, and eliminate earmarks for arts and social organizations.

The council is also proposing a $45 million cut in funding for public education, which will probably set up a major battle with Fenty.

Fenty, who has made school reform his top priority, has tried to spare the system from cuts even while reducing government spending in most other agencies.

"Both the Mayor and Council have worked hard over the past 5 weeks to close budget gaps. We look forward to receiving the Council's final plans and will continue to work with them to ensure balanced budgets in both Fy 09 and FY 10," said Mafara Hobson, Fenty's spokeswoman, in a statement.

Besides the rises in sales, cigarette and gas taxes, council members also agreed on a proposal to raise $22 million by making it harder for multi-state corporations to avoid paying local taxes.

The tax increases were needed because members wanted to restore some of the spending reductions that Fenty has proposed.

Council member Michael A. Brown (I-At Large) fought to restore nearly half of the proposed reduction in a program that provides cash assistance to poor residents. Council member Marion Barry (D-Ward 8) pushed to restore $5 million for job training.

On Wednesday, council members also considered increasing the city's property tax rate, now set at 85 cents for every $100 of assessed value. Council members said the District's rate is lower than those of its suburban neighbors in Maryland and Virginia. A proposal to increase the income tax rate on people who make more than $500,000 annually was debated, too.

But member Jack Evans (D-Ward 2) threatened to walk out of the meeting because he feared his colleagues were being too supportive of additional taxes.

Evans said the city was headed toward returning to the fiscally irresponsible behavior of the mid-1990s, when the District went broke. He said higher taxes invited higher spending, which would only worsen the city's deficit later on.

"I can't sit here for 10 years and work to build up a [balanced budget] to throw it out in one year," said Evans, chairman of the Revenue and Finance Committee. "You can throw that [property] tax rate above 90 cents like we used to have, and next year you can run this train off the tracks and bring back the control board."

Council member Tommy Wells (D-Ward 6) said avoiding taxes would mean that more of the city's poorest residents would be in danger of losing vital services.

"You want no sales tax increases. No property tax increases. No income tax increases. But these guys got to take it," Wells said, referring to social service agencies. "There's got to be some fairness."

Council members said they prefer a sales tax increase instead of a property tax increase because tourists and non-District residents will also have to pay it. In raising the cigarette tax, some members said they hoped to discourage smoking and raise about $10 million annually. But the increase could encourage residents to travel to Virginia to buy their cigarettes. Virginia has a 30-cent tobacco tax. Maryland's is $2.

The council is also considering a proposal to raise about $2 million annually by doubling the parking fees paid by city workers from $80 to $160. Members would continue to park for free on Pennsylvania Avenue NW in front of the John A. Wilson Building.

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