Senate Panel Scrutinizes D.C. Tax-Cut Proposal

D.C. Del. Eleanor Holmes Norton's tax-cut bill got a careful review on Capitol Hill yesterday, and both Democrats and Republicans predicted Congress will pass legislation this year providing tax incentives to spur D.C. investment and relieving the city of some costly programs.

In the first Senate hearing on her proposal to slash federal income tax rates for D.C. residents to 15 percent, Norton (D) urged Congress to act swiftly before more residents flee the troubled city. While emphasizing that her bill alone would not cure all that ails the District, Norton said that it would give residents a strong incentive to remain.

"If we retain and attract middle-income singles and young married and retired people, we will have a tax base while we are rebuilding the city's schools and other services," Norton said. "The present flight is undermining the work of the city and the control board to restructure finances and services, because their work cannot bear fruit if the taxpayers who are necessary to support the city leave."

Sen. Sam Brownback (R-Kan.), chairman of the Senate Governmental Affairs subcommittee on the District, said that although he is not ready to endorse Norton's tax-cut proposal, he favors tax incentives to stimulate investment and job creation in the city. He also wants Congress to aid the city's efforts to improve public schools, public safety and roads.

Brownback questioned aspects of a White House proposal that would transfer the city's Lorton prison, personal income tax collection and other functions to the federal government. He said federalizing D.C. programs that are in disarray would not necessarily fix them.

One of Brownback's colleagues, Sen. Lauch Faircloth (R-N.C.), chairman of the Senate Appropriations subcommittee on the District, has said D.C. programs would improve if Congress transferred control over day-to-day operations from the mayor to a professional city manager. Brownback said he had taken no position on the idea.

Brownback favors a capital gains tax cut for the District and the rest of the nation. But before reaching final conclusions on what a "comprehensive" District proposal ought to look like, Brownback said he wants to visit Lorton and a D.C. public school and confer at greater length with District leaders.

Still, noting that President Clinton and congressional leaders have agreed to make the District a priority, Brownback said a broad-based D.C. reform package is likely to pass this year.

"You put up hay while the sun is out," Brownback said. "You have the sun out here. . . . When there is an opportunity, you move forward."

Norton's tax-cut proposal was praised yesterday by tax-reform advocate Jack Kemp, who called it far-reaching. In his statement, Kemp explained that there was considerable opposition from left-wing Democrats, who fear it would benefit the rich, and from right-wing Republicans, who fear it could give Mayor Marion Barry (D) a political boost.

After the hearing, Kemp said the strong opposition of Rep. Bill Archer (R-Tex.), chairman of the tax-writing House Ways and Means Committee, remains a major obstacle. But he said House Speaker Newt Gingrich (R-Ga.) and Senate Majority Leader Trent Lott (R-Miss.) favor a tax cut for D.C. residents, increasing the odds that legislators will reach a compromise.

Norton's bill, which would cost the U.S. Treasury an estimated $700 million a year in forgone revenue, has been criticized for being too costly. Norton said yesterday that she has some "fallback" positions that would reduce the cost without jeopardizing the bill's goals.

William A. Niskanen, chairman of the conservative Cato Institute, told the Senate panel yesterday that Norton's bill was a bad idea that would not achieve its stated goals. He said residents with incomes of $30,000 to $75,000 would save $2,000 to $3,000 a year in taxes, a sum that he said would not cover tuition for one child at many private schools.

"Satisfactory schools and safe streets are the two essential conditions to maintain a middle-class community," Niskanen said, "and this proposal would not address either condition."

Niskanen said Norton's bill would attract more wealthy individuals and families to the District, driving up home prices and giving middle-class residents another reason to move to the suburbs. Norton said the bill has built-in protections to address that potential problem.

At the hearing, Barry praised Norton's proposal but said it does not go far enough. He said District residents should pay no federal income taxes because they have no voting representation in Congress.

The mayor also said the White House plan should retain some part of the $660 million federal payment to the city and include support for the University of the District of Columbia and mental health programs. Asked whether the solution to the District's problems might lie in retrocession to Maryland, the mayor took an expansionist view as he testified on his 61st birthday.

"If I can do anything," Barry quipped, "I want to get Arlington County and Alexandria back."