Carol Schwartz Schwartz campaigns at the Eastern Market Metro station. (By Reginald A. Pearman Jr. – washingtonpost.com) Post Stories • Wearing the GOP Mantle Loosely • Candidate's Economic Plan • Schwartz Outlines Platform

By Vanessa Williams
Washington Post Staff Writer
Friday, October 16, 1998; Page B01

The tax cut, that staple of election year politics, has yet to catch on as an issue in this year's District mayor's race.

Democrat Anthony A. Williams has backed off his plan for a gross receipts tax to replace or reduce other taxes, and Republican Carol Schwartz's proposal to cut the sales tax has been met with shrugs from the city's business leaders.

Across the border in Virginia last year, Republican James S. Gilmore III rode a promise to eliminate the car tax all the way to the governor's mansion. Across the border in Maryland, Republican challenger Ellen R. Sauerbrey is running neck and neck with Gov. Parris N. Glendening on the promise of a big tax cut.

But in Washington, economists warn that the financial recovery has not been sufficient to support a sizable tax cut any time soon. And in an election often overshadowed by debate over who has lived in the city longest and who deserves credit for the financial turnaround, the real differences between Schwartz and Williams over taxes have garnered scant attention so far.

Anthony A. Williams Williams shakes hands in Ward 4. (By Lucian Perkins – Washington Post) Post Stories • Williams: No Mass Firings • Democrats on To-Woo List • 'Mr. Bow Tie' Is Man to Beat

Williams, the city's former chief financial officer, agrees with the economists who warn that a tax cut would be premature and foolhardy. He advocates using the budget surplus to improve public schools and to repair the city's infrastructure.

Schwartz, an at-large member of the D.C. Council, disagrees. She insists that the city could afford to provide tax relief to residents and businesses if the federal government resumed its annual payment.

Schwartz has called for a reduction in the city's sales tax and says Williams's opposition to her tax cut proposal "represents the status quo -- boarded up businesses and D.C. people shopping in the suburbs."

In an interview this week, she also accused Williams of sending confusing signals on whether he supports a gross receipts tax.

"My head's spinning," Schwartz said. "He says he's for a broad-based tax, either gross receipts or value-added, even though he's telling the business community he's backed off the gross receipts. He's trying to raise money from them and trying to get their endorsements."

Williams is reluctant to acknowledge that he changed his mind about the gross receipts tax.

"I've always said the focus should not be on the particulars of a gross receipts tax, but on reducing taxes and directing that reduction to small businesses where there's potential for growth, simplifying the tax structure and putting in place some sort of tax that is fair to everyone," he said.

A gross receipts formula would tax the annual revenue of businesses. During the primary, Williams argued in favor of the tax, in combination with eliminating other taxes, such as commercial property and arena taxes and professional license fees, as a more fair and simple method of assessing businesses.

The city's business community never warmed to the gross receipts tax. The D.C. Chamber of Commerce's political action committee cited Williams's support for it as one of the reasons it did not endorse him in the Democratic primary. The DC-PAC instead backed council member Jack Evans (D-Ward 2), who sought to make the gross receipts tax a major issue in the race, going so far as to order posters criticizing Williams for supporting the proposal.

Scott Bolden, chairman of the D.C. Chamber, applauded Williams for having abandoned the idea of a gross receipts tax.

"He has embraced the political reality that it [gross receipts tax] is undoable and unwanted by the substantial business interests in the District of Columbia," Bolden said.

But the business community appears no more excited about Schwartz's proposal to reduce the sales tax from 5.75 percent to 4.5 percent.

"The business community wants tax changes that will make the city more competitive in the region," said Mary Anne Reynolds, spokeswoman for the Greater Washington Board of Trade. "The truth is the sales tax isn't what contributes to the uncompetitive business climate. The real culprit is the corporate income tax, workmen's compensation and unemployment insurance rate. . . . Those are the real killers and what's been sending businesses to the suburbs for the last decade."

Both Schwartz and Williams sidestep questions on workers' compensation and unemployment insurance, saying any efforts to reduce the benefits to more competitive rates would have to be negotiated with the city's labor unions.

Williams has described Schwartz's tax proposal as irresponsible and misguided. While speaking to a group of small-business owners this week, he said, "My opponent wants to reduce the sales tax, but 50 to 60 percent of the sales tax is borne by people living outside the city."

He told them that he would focus on reducing taxes on small-business owners, particularly those with growth potential. He cited firms in health, technology and trade associations.

He argues that Schwartz has not shown how she would pay for any tax cuts and said that he doubts the federal government would cover the cost of it.

Schwartz thinks the federal government could be persuaded to resume its annual federal payment to the city. The contribution, which two years ago was $660 million, was eliminated last year when the federal government agreed to pick up some city costs, including its pension liability, its prisons and a larger share of Medicaid costs.

Stephen Fuller, professor of public policy at George Mason University who studies the region's economy, said the District currently cannot afford to absorb a tax cut. He also said it was unlikely the federal government would help finance a tax cut for the city.

"At some point not too long from now, the economy could very well be strong enough to support a tax reduction, but I doubt it will be this next term of whoever is mayor."