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  D.C. Loses Out When It Loses People, No Matter What New Tax Report Says

By Rudolph A. Pyatt Jr.
Washington Post Staff Writer
Monday, January 19 1998; Page F04

A new report showing that revenue from the District's personal income tax has not been hurt by the steady population drain is apparently at odds with a widely held assumption.

One should be careful, however, not to read too much into the finding. Researchers used tax filing data to develop a picture of what has been happening to the District's population and economy. But the point about population and tax revenue is little consolation, given the continuing drain of people, business and jobs from the District.

Research shows the number of people filing income tax returns in the District fell from 304,505 in 1989 to 242,280 in 1995. But the biggest drop in population occurred among people with incomes below $45,000, according to the report to the D.C. Tax Revision Commission. The number of District taxpayers with incomes exceeding $45,000 actually increased during that period, the report shows.

Even so, income tax revenue growth has been sluggish, said Philip M. Dearborn, executive director of the tax revision commission. Even if those who exited the District in the period covered by the report had remained, the increase in revenue from income taxes would have been only $39 million, researchers found.

The report will no doubt be useful to the commission as it prepares a comprehensive summary on taxes and recommends changes to city officials.

Meanwhile, it may be true that the population decline isn't destroying the District's income tax base, but the decades-long migration from the city clearly is having an adverse effect on its economy. The population spiral, which began nearly 30 years ago, the staggering loss of business and jobs and a sharp drop in personal income as a percentage of the region's total cannot be viewed as isolated developments. They're all part of a trend that has dealt a severe blow to the District's economy over time.

The damage from population loss in the District was done long before 1989. Clearly, the District had lost a substantial portion of middle-income taxpayers by then. Now those with incomes of less than $45,000 are leaving for many of the same reasons: a strong desire for better services, more affordable housing, better schools and improved employment opportunities.

People moving into the District have higher average gross incomes than those who are moving out, according to the report. Still, the District lost about 7,000 tax filers annually to Prince George's County over the past five years, for example -- almost twice the number that moved from the county to the District. Another 3,000 to 4,000 a year moved from the District to Montgomery County, compared with 2,000 a year migrating from Montgomery County to the District.

Personal income tax revenue in the District may not have taken a big hit as a result, but the loss of 10,000 to 11,000 residents annually represents a considerable amount in sales tax.

"The consultant did say some of the sales tax loss can be attributed to population loss, but it's not that great," Dearborn said.

The principal problem with revenue in the District, he suggested, lies in the fact that the city has not been able to recover from the 1990-1991 recession as rapidly as the suburbs did.

That is true. But the fact is, the District never really recovered from the huge drop in population between 1970 and 1980, when it lost 121,000 residents, or 16 percent. The income of those moving into the District in recent years may be higher than that of people who left, but the loss of 200,000 residents since 1970 is staggering.

Therein lies a major reason why the District's economy, a projected budget surplus notwithstanding, continues to struggle. People move to the suburbs. Businesses follow their customers and, pretty soon, other businesses follow their clients.

In 1970 there were more than 19,000 manufacturing jobs in the District. Fewer than 14,000 remain. Wholesale and retail trade employment accounted for 80,000 jobs in the District in 1970. Now there are only 49,000 jobs in that category. Government jobs, which had been the lifeblood of employment in the District, have declined by 24,000.

The report to the tax revision commission makes a telling point. In 1980 the federal government was the single largest employer of D.C. residents, according to the report. But by 1990, the services industry was the single largest employer of District residents. In the interim, federal employment of D.C. residents dropped from 70,775 to 48,342, or 31 percent, according to the report.

An overall reduction in federal employment notwithstanding, some government jobs in the District are obviously held by former residents now living in the suburbs. That clearly is part of a decades-long trend in which there has been a steady decline in the share of total income earned by District residents who work in the city. A whopping 62 percent of D.C. workers are commuters.

That brings us to another tax issue, which is duly noted in the report to the tax revision commission.

"It seems likely," the author of the report concluded, "that most would agree that commuters who use municipal services at their place of work should, to the extent practical, pay for these services."

Put another way, reasonable people would agree that Congress should give the District authority to impose a commuter tax. It still isn't clear whether the commission will make that recommendation, which, nonetheless, should be included in the commission's report.

Finally, the new report to the tax revision commission makes a point with an implication that seems far more significant than its conclusions about population decline and income tax revenue.

If D.C. officials were to make significant tax reductions, as suggested by many policymakers as a strategy to make the city a more attractive place to live, the report concluded, "it is unlikely that greater economic growth in resident taxable incomes would occur quickly."

© Copyright 1998 The Washington Post Company

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