Tax increases on D.C. Council agenda

By Tim Craig
Washington Post Staff Writer
Thursday, April 29, 2010

The D.C. Council will consider tax increases in the coming weeks to close a $550 million budget gap, including higher income taxes on the wealthy and new levies on liquor, soda, parking, pet grooming, club memberships and theater tickets.

Concerned that the budget that Mayor Adrian M. Fenty (D) proposed last month cuts too deeply in some areas and endangers the city's credit rating, many council members said Wednesday that they see no alternative but to find other revenue sources. But some members still hope to avoid an election year tax increase.

Council member Tommy Wells (D-Ward 6) told his colleagues in a closed-door meeting that they have to "be responsible" and "rebuild" Fenty's budget proposal.

"People will deal with an honest budget, but this is not an honest budget," Wells said of Fenty's plan. "If we have to raise resources, let's be straight about it."

The council will not vote on the budget until late May, but members are maneuvering to organize support or opposition to more than a dozen potential increases or new taxes.

Council member Mary M. Cheh (D-Ward 3) is proposing a 1-cent-per-ounce tax on soda, which would provide $6 million a year for an initiative to improve school nutrition and $10 million for other purposes. A majority of council members appear to support the tax, which would bring the District in line with 30 states.

Other proposals could be more controversial.

The District's income tax rate on $40,000 a year or more is 8.5 percent. But council member Jim Graham (D-Ward 1) is proposing to increase the rate to 8.9 percent on taxable income of $500,000 a year or more. Graham's measure, which the council rejected last year, would generate as much as $20 million a year.

"My proposal directly links the tax to programs for the most needy," Graham said. "It would go to the safety net."

Council member Michael A. Brown (I-At Large) is proposing two new rates for high-income residents: 8.9 percent on $250,000 to $1 million and 9.4 percent on $1 million or more.

Several council members appear open to raising income taxes on the wealthy, but Jack Evans (D-Ward 2) said he probably will resist such efforts, fearing the city's wealthiest residents would flee.

Meanwhile, about half the council is up for election this year, and some members appear unenthusiastic about tax increases.

"I'm not interested in raising a whole bunch of taxes," said council member Kwame A. Brown (D-At large), a candidate for council chairman.

The Fair Budget Coalition, made up a three dozen nonprofit and advocacy organizations, is circulating a proposal to extend the sales tax to more services. If an expansion is approved, advocates say, the city's 6-cent sales tax could apply to kennels, dating services, day spas, carpet cleanings, private investigation services, health clubs, tanning salons, cultural events and nearly two dozen other services that now escape it.

George A. Jones, executive director of Bread for the City, which provides food and social services to the poor, said many high-income residents would pay more in taxes if they understood the severity of the budget cuts.

"This is a city of fairly enlightened people," Jones said. "Our appeal to the council is share some of the burden."

The looming struggle within the council represents a test of Vincent C. Gray's ability to mesh his job as council chairman with his role as a mayoral candidate. Last year, Gray put together a council majority to raise sales, cigarette and gas taxes to help eliminate a budget shortfall. There was almost no public outcry.

For Gray, the debate over taxes is more delicate this year as he balances the wishes of competing constituencies heading into the Sept. 14 Democratic primary.

Gray's chief rival, Fenty, pledged during his 2006 campaign not to propose higher income or property taxes as mayor. The mayor's spending plan would not raise either of those taxes, but it calls for more than a dozen new or increased fees and a 1 percent tax on hospitals.

The administration issued a statement defending Fenty's spending plan as a balanced budget that streamlined operations, improved programs, fully funded the core mission and kept the promise not to raise taxes.

The council wants to eliminate some of Fenty's fee proposals -- including higher parking meter rates -- and members are searching for several million dollars in other savings or additional revenues. Council members are also looking to restore tens of millions of dollars in cuts to human services and health care, and they hope to find additional money for Metro and for libraries, parks and recreational facilities.

In addition, Evans and Gray have expressed concern that Fenty would deplete the city's emergency cash reserves to help balance the budget. Both said they had promised nervous bond-rating agencies that the city would not dip below $900 million in reserves. According to council documents, the city will have $606 million in reserves in fiscal 2012 unless changes are made in Fenty's budget.

"I think the council is once again having to step up and engage in responsible fiscal management," said Gray, who added that he has not arrived at a position on raising taxes. "There are three ways to address it: You raise taxes, you cut spending or you go into the piggy bank. Well, the piggy bank is about depleted."

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