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D.C. Council consider raising taxes

By Tim Craig
Washington Post Staff Writer
Monday, December 6, 2010; 11:16 PM

D.C. Council members are considering proposals to raise taxes on middle- and upper-middle-class residents, not just the wealthy, as they try to close a budget shortfall that they say will require deep cuts to social programs, potential layoffs or furloughs of city employees and new tax brackets.

On Tuesday, the council will vote on a proposal by Mayor Adrian M. Fenty (D) to close a $188 million budget shortfall in the current year's budget through an array of spending cuts that many advocates have decried as mean-spirited. A tax increase is not expected to be approved Tuesday, but council members say the council debate will set the stage for a showdown next spring as they grapple with even larger shortfalls for fiscal 2012.

"I would love to see someone's budget next year that doesn't include a tax increase," said Council member Michael A. Brown (I-At Large). "The numbers are just too big."

To close the immediate shortfall before he leaves office, Fenty proposed curtailing temporary cash assistance to needy families, scaling back the summer jobs program, cutting job training and energy assistance programs and slashing payments to 700 low-income grandparents who care for their grandchildren.

Under pressure from advocates, D.C. Council Chairman Vincent C. Gray and council members have been exploring ways to raise additional revenue to soften the impact on human-service programs.

Gray, who will be sworn in as mayor Jan. 2, decided to keep nearly all of Fenty's proposed cuts to human service programs. But Gray wants to add back nearly $6 million for job training programs and restore cuts to energy assistance programs. He also wants to keep funding for a new initiative to pay for healthier school lunches.

Council officials also confirm that Gray will propose to place $31 million in funds earmarked for D.C. Public Schools in a reserve account until the system can prove the money is needed. Council members also probably will approve furloughing non-essential city employees on four holidays, meaning they won't get paid for the day off.

Gray had ruled it out

Gray, through a spokeswoman, declined several interview requests Monday.

But several council members said Gray ruled out supporting a tax increase this year, preferring instead to seriously consider the issue in the spring, when he and the council are expected to face a budget gap in the fiscal year 2012 budget that could top $400 million.

Currently, all District wage earners who earn $40,000 a year or more pay an 8.5 percent local income tax rate. Until now, much of the discussion in the council has centered around raising taxes on the wealthy, which would require the creation of a new tax bracket affecting residents who earn either more than $200,000 or more than $500,000 a year.

But in recent days, the debate has shifted toward proposals by Tommy Wells (D-Ward 6) and David A. Catania (I-At Large) that would make broader-based increases in the income tax rate.

Instead of just targeting programs that support the poor and tax hikes aimed at the wealthy, a growing number of council members say all residents should share in the pain of closing the city's budget shortfall.

"I am not excited about this, because it really is a concession of many years of work, of being engaged in fighting for lower taxes," said Catania, a former Republican. "It is a very bitter pill to swallow, but for me what makes sense is shared sacrifice."

Catania is proposing to couple an income tax increase from 8.5 to 8.75 percent for those making more than $40,000 with layoffs, pay cuts and additional cuts to many government programs. A resident with an annual of income of $100,000 would pay an extra $250 a year in taxes.

Catania said he would not push for his proposal until the spring, to give Gray and the council time to come up with additional spending cuts.

Three new tax brackets

Wells, however, plans to ask his colleagues to support his proposal to raise taxes at Tuesday's council meeting.

Saying he would not support Fenty and Gray's proposal to close the shortfall unless it includes additional revenue, Wells is proposing to create three new tax brackets, the first of which would hit residents who earn between $75,000 and $150,000.

If approved, those taxpayers would pay an additional quarter percentage point income tax rate. The increase would grow by a half percentage point, 9 percent, for taxpayers who earn between $150,001 and $500,000 annually. A new 9.5 percent tax bracket would be created for residents who earn more than a half-million.

"I am introducing it to change the conversation away from the millionaires tax," said Wells, noting that District residents who earned at least $20,000 paid a 9.5 percent income tax rate in the mid 1980s. He said his proposal was "predicated on 'everyone gives up something.' "

But Wells is unlikely to find majority support for a tax increase until next year. Not only has Gray signaled that he prefers to wait until spring to consider a tax increase, several other council members said they prefer to deal with the shortfall in the current year's budget through spending cuts.

"I don't think the votes are there, in my view," said Council member Phil Mendelson (D-At large). "While I think we ought to restructure and re-bracket the income tax, this is not the time. I will probably be supportive in the spring."

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