One of the major defects in "home rule" is the congressional prohibition of a District tax on the income of nonresidents. Some 400,000 commuters work in the District. In fiscal year 1987 alone, the inability to tax any of their income cost the District about $809 million. Thus, even if the District were to impose a nonresident tax at a level significantly below that paid by residents, the revenue gain to the District would be substantial.
The need for this additional revenue is well documented. At the close of FY 1986, the District had an accumulated general fund deficit of $224.9 million and an unfunded pension liability of $3.4 billion. The District has the highest tax burden of any of the metropolitan jurisdictions, and the District's tax rates are among the highest in the nation. In 1985, the U.S. average percentage of state personal income collected from state taxes was 6.54 percent. The District, at 13.91 percent, was more than double the U.S. average and was exceeded only by Alaska at 19.90 percent.
But one does not have to rely on need alone to make the argument. A nonresident income tax is grounded in the tenet that income should first be taxed at the source of earning. As far back as 1920, the U.S. Supreme Court in Shaffer v. Carter upheld a state's right to tax the income of nonresidents earned within the state. Every state that currently imposes an income tax has the authority to impose a nonresident income tax. Maryland and Virginia, the states that fight the hardest against a District nonresident income tax, both currently impose a such a tax.
A District nonresident income tax would not result in double taxation, as some would have you believe. Rather, it could be structured to grant the nonresident a credit for income taxes paid to his or her home state, it is in Maryland and Virginia.
One of the main arguments raised against such a tax is that nonresidents who hold District jobs already contribute to the city's revenues through payment of various sales taxes (general sales tax, restaurant meal tax, alcoholic beverage tax, parking tax). This argument fails to take into account several factors:
District residents also pay sales taxes in the surrounding jurisdictions. Given the retail growth and proliferation of shopping malls in the suburbs, I would venture to estimate that the sales taxes paid by District residents in the suburbs equal, and may even exceed, the sales taxes paid in the District by nonresident holders of District jobs.
The employment pattern is such that 32 percent of the 2 million jobs in the region are in the District, the largest percentage for any of the jurisdictions. The 1980 Census revealed that approximately 50 percent of the District's jobs were held by nonresidents, and it is believed that the same holds true today. This is a contributing factor to the District's having higher unemployment than the surrounding suburbs. In 1986, approximately 25,000 District residents were unemployed. If all of them were given jobs now held by nonresidents, there would be two benefits: the financial burden of supporting the unemployed would be eliminated and the District would realize increased income tax revenues.
The District cares for a disproportionate share of the area's poor, thus lessening the financial burden on the surrounding jurisdictions. The 1980 Census reveals that the District, with only 20 percent of the area's population, contains 46 percent of the area's population that lives in poverty.
No discussion of a nonresident income tax would be complete without some reference to the District's requirement that D.C. government employees reside in the city. Initially a strong supporter of the requirement, I have recently found myself moved by the arguments against it: it restricts the basic freedom to choose where one will live; the cost of living in the District is high; it hampers the District's ability to attract qualified personnel.
The most compelling argument for retaining it, however, is the District's need to receive the income taxes paid by the 60 percent of District government employees who reside in the city. The loss of those millions of dollars could not be handled without an increase in taxes or a cutback in vital city services -- some of which would also adversely affect nonresidents who work in the District. A nonresident income tax would allow the District to remove its residency requirement, thus opening up more job opportunities for suburban residents.
Del. Walter Fauntroy's statement, as reported in The Post Aug. 1, to the effect that he would be willing to give up the fight for a nonresident income tax in order to obtain statehood is appallingly shortsighted. Statehood without the ability to impose a nonresident tax is not statehood at all. The residents of the District have "home rule" that is not home rule -- no budget autonomy, no legislative autonomy and no nonresident income tax. I want that corrected.
John A. Wilson
chairs the D.C. Council's Committee on
Finance and Revenue.