Before cutting other taxes, the District of Columbia government should consider reducing the income tax it collects from the city's poorest residents, D.C. auditor Matthew S. Watson has advised the city's policy makers.
"Although it is generally accepted that the District income tax is a smaller burden than the federal tax this is not true at the lowest income levels, particularly for families with children," Watson said in a letter to Mayor Walter E. Washington and the City Council.
"A single person under 65. . may pay $55 in District income tax even though (his or her) income is too low to pay a cent of federal income tax," Watson wrote. "A married couple . . with a dependent child will pay $138 in District income tax before (its) income is high enough to pay a cent of federal income tax."
Watson said he wrote his letter because the mayor and council soon will consider adjustments in rates and procedures on various city taxes.
"The greatest concern is that the government treat lower-income taxpayers fairly," he said. "The income tax rate structure for the lowest brackets should be re-examined."
Although his unsolicitated letter ranges beyond a strict definition of the city auditor's role, it is in line with Watson's belief that he should serve as a sort of adviser and ombudsman on financial matters.
"The policy question that should be answered," Watson said, "is whether a full-time worker earning at the minimum wage and supporting a dependent should be required to pay any District income tax.
"That worker now pays no federal income tax and, if the dependent is a child, receives a (subsidy) from the federal government" of up to $301.
Watson said the decision could be costly. In 1975, the city collected nearly $3 million from taxpayers with adjusted gross income under $5,000, he said. The city's total yield from personal income taxes exceeds $200 million annually.
However, Watson said, there could be savings.
The city would not have to process thousands of returns from low-income workers he said, and bringing the District of Columbia's income tax structure closer into line with the U.S. tax would make it possible in the future to collect both taxes at the same time.