Norton Vows to Seek Tax Cut For D.C. Residents Next Year

D.C. Del. Eleanor Holmes Norton said yesterday her top priority next year will be getting Congress to pass a bill that stabilizes the District's economy by slashing federal income tax rates for city residents.

Norton (D) said that the District has been losing residents at an alarming rate and that radical changes are needed to halt the exodus before it permanently cripples the city. The District, which has a population of about 554,000, has lost more than 50,000 residents in the 1990s, many of whom fled to the suburbs in search of cheaper houses, lower crime and better schools.

The bill has support from leaders in both parties, although the opposition of Rep. Bill Archer (R-Tex.), chairman of the tax-writing Ways and Means Committee, remains a major hurdle. The bill also faces opposition from some Maryland and Virginia politicians who fear it could give the city an unfair advantage. The bill drew praise earlier this year from House Speaker Newt Gingrich (R-Ga.), whom Norton met with on other matters yesterday. Although the White House opposed the tax cut as a way to revive the city's economy, Norton said she doubted President Clinton would veto the bill if it passed Congress.

"Nothing else matters if we continue to hemorrhage taxpayers," Norton said. "The work of the control board and the city will come to very little if we are left with a taxpayer ghost town. . . . There comes a point where the critical mass is gone and the District becomes a ward of the federal government. At that point, home rule is a moot point, because you are on a complete federal dole, and you are controlled by the dole makers."

Archer and others who oppose the bill say it is unfair to grant District residents a tax break that people in other major cities do not get. They also point out that it would add to the nation's budget deficit by decreasing federal tax collections in the city. Gingrich has said one way to address those arguments is to attach the special break for D.C. residents to a broader tax reduction bill. Republicans who favor the measure also say it is an excellent opportunity to test the idea that hefty tax cuts spur economic growth.

Norton's latest version of the bill would eliminate federal income taxes for people with incomes of $15,000 or less and generally apply a flat rate of 15 percent on the earned income of others, a sharp reduction from top tax rates of about 40 percent. The District legislator said she is reviewing whether to reintroduce that version of the bill or modify it to give it a better chance of passing. Initially, Norton had sought to eliminate federal income taxes for District residents.

"We can't afford to play chicken with our tax base one year longer," Norton said. "Some version of this bill can pass."

In addition to pursuing the tax cut, Norton wants Congress to do something about the District's single biggest financial problem, a $4.9 billion shortfall in its pension plan for police, firefighters, teachers and judges. Most of that gap can be traced to the sorry financial state of the pension plan when the federal government turned it over to the city in 1979, she said, so Congress has the responsibility to address the matter.

The pension system drains hundreds of millions of dollars a year from the city's budget, a burden that hampers the District's efforts to emerge from its financial crisis. City officials have done their part by preventing newly hired employees from being added to the pension plan and by obtaining concessions from employees and retirees, Norton said, and now Congress must act.

Norton said she is working closely with federal officials to devise innovative ways to tackle the pension problem. The most obvious answers involve substantial increases in federal funding of the program, but such a move faces substantial political opposition.

After Congress convenes next month, Norton said, she also will focus on obtaining relief for the District from new federal welfare guidelines that could impose financial penalties on the city unless 25 percent of its residents on public assistance find work. She said other cities would not be affected by the rules in the same manner because they are part of states with more diverse economies.