The District's income tax laws haven't undergone comprehensive revision essentially since 1947, an oversight that critics blame for taxpayer errors and frustration.
In essence, the city's income tax law doesn't conform with the federal system, thereby presenting District taxpayers with "separate and complicated computations," maintains D.C. City Council member John A. Wilson, chairman of the Finance and Revenue Committee.
In most cases, District taxpayers--unlike their counterparts in Maryland and Virginia, for example--can't use the figures and computations they relied on in filling out their federal income tax returns, Wilson pointed out.
But after his committee's unanimous approval yesterday of a bill to achieve conformity, Wilson is confident the full council will move quickly to achieve his aim--tax relief for District residents and conformity with the federal income tax system.
"I have consistently favored changing the District's income tax to bring it closer to conformity with the federal system," Wilson had said before moving the bill (4-148) at a meeting of the committee.
Although some council members and civic groups had pushed for similar legislation in recent years, they failed to get the support necessary for passage.
Wilson recalled that at least three versions of a bill to change the income tax law had been introduced by different council members within the past year or so. And just when it appeared that passage might have been possible, Mayor Barry withdrew his support last December, apparently over concern about potential revenue loss, Wilson said.
Passage of the bill would mean projected revenue losses totaling $39 million through 1986, but Wilson thinks administrative savings will partially offset that.
He now believes the committee has done its homework well enough to ensure passage by the council.
"There was never any question as far as I'm concerned whether we would do it," Wilson said. "It was whether we conformed" with the federal income tax laws "completely or partially."
What's more, Wilson remarked, "The one thing I'm proud of is that none of my legislation has ever been rejected by anybody."
As Wilson sees it, without the measure, and, in particular, some of its key provisions, there would have remained a disincentive for middle-income taxpayers to live in the District.
"I think this government ought to stop giving lip service to trying to get the middle class to stay here and to move here," Wilson declared. "The middle class pays the bills, and we ought to keep them here."
In fact, added Wilson, "Everybody shares in this bill."
He says that the move to conformity will benefit District taxpayers by making more deductions available to them and by making the local tax forms easier to understand and complete.
Several provisions of earlier bills with some refinement have been incorporated into 4-148.
At least one provision, similar to legislation introduced by councilmember Betty Ann Kane, would give District residents the same break on their local income taxes that Maryland and Virginia residents get for establishing Individual Retirement Accounts.
New federal regulations allow taxpayers to deposit up to $2,000 a year in IRAs ($4,000, if filing jointly) even though they may be covered by an employer pension plan. While taxpayers in most states may deduct those contributions from taxable income, District residents are barred from claiming them as deductions.
Bill 4-148 also incorporates the intent of another piece of legislation that Kane had introduced earlier. It would have the District adopt the federal exclusion from gross income of interest earned on All Savers certificates.
Federal law permits an individual to exclude up to $1,000 of interest income ($2,000 for couples filing jointly) from one-year certificates purchased at financial institutions after Sept. 30, 1981, and before Jan. 1, 1983. Maryland and Virginia allow this exclusion.
Further, Wilson's bill would:
* Allow self-employed persons to establish their own pension plans (Keogh) and deduct the lesser of $15,000 in payments or 15 percent of income on their District tax returns.
* Give District taxpayers greater latitude in claiming charitable contributions as deductions by following the federal standard. At present, the District allows deductions only for charities that conduct their activities to a substantial extent in the District.
* Disallow a deduction for deed-recording taxes paid.
* Adopt the federal position on political campaign contributions. Currently, federal law allows the taxpayer credit for political campaign contributions of up to $50 ($100 on a joint return). However, the District allows for up to $25 ($50 on a joint return).
In other areas, the District's income tax requirements under Wilson's bill would differ from those of the federal system.
For example, federal law imposes taxes on interest earned on federal obligations but not on state and municipal obligations. The District currently does not tax interest earned on any obligations.
Under Wilson's bill, the District would tax the interest income earned on state and municipal obligations purchased after Dec. 31, 1991, but it would not tax income on District and federal obligations.