With $2.3 billion to spend from the Biden administration’s pandemic-relief funding, Chairman Phil Mendelson (D) and others argued that raising taxes would be unnecessary and inappropriate this year. Mendelson’s proposed budget, which the council voted to adopt on Tuesday, already included funds for a long list of liberal priorities, including new trusts for low-income babies and major increases in housing programs, without raising taxes.
But on an 8-to-5 vote, the council voted to add taxes that could raise about $100 million in revenue in fiscal 2022, and to use that money for housing vouchers, subsidies for day-care workers’ wages and monthly tax credits for low-income families.
Tuesday’s vote was the council’s first motion to adopt the 2022 budget, which will be followed by final votes in August. The version includes generous spending on a long list of programs, mostly funded by the federal grants as well as other sources of local revenue. The council adopted Mendelson’s suggestions to raise spending on legal services to protect residents from eviction and fund an idea from Kenyan R. McDuffie (D-Ward 5) to set aside money in the form of “baby bonds” for low-income children, and most of Mayor Muriel E. Bowser’s proposals for new spending in a wide variety of areas.
Council member Elissa Silverman (I-At Large) proposed money for workers who had essential jobs during the pandemic (termed “hero pay”) and an increase in checks for undocumented workers and others who were ineligible for prior stimulus programs, but she garnered only the votes of Brianne K. Nadeau (D-Ward 1) and Janeese Lewis George (D-Ward 4) for her idea. Others said the money she wanted to spend would be better allocated to replenishing the city’s unemployment insurance fund.
The authors of the tax increase proposal — Nadeau, Lewis George and Council member Charles Allen (D-Ward 6) — say that wealthy residents who were not financially hurt by the pandemic can afford to pay more, and that the city needs a long-term funding stream, not a one-time federal infusion, to address issues such as poverty and homelessness.
“We have the wealth and the resources in our city to solve these issues, not just for this fiscal year or next fiscal year but for decades to come,” Lewis George said in an interview.
The three were joined in supporting the tax increase by Silverman, Vincent C. Gray (D-Ward 7), Christina Henderson (I-At Large), Robert C. White Jr. (D-At Large) and Trayon White Sr. (D-Ward 8).
The measure would raise the marginal tax rate to 9.25 percent for a single earner who makes between $250,000 and $500,000 per year. Currently, those who make between $60,000 and $350,000 annually are taxed at 8.5 percent, and those who make between $350,000 and a million dollars a year are taxed at 8.75 percent.
Those earning between $500,000 and $1 million dollars annually would see their marginal tax rate increase to 9.75 percent, and the top marginal tax rate for those earning more than a million dollars annually would grow from 8.95 percent to 10.75 percent.
That would translate to about $375 more in the yearly tax bill of someone earning $300,000, and $6,500 more in the tax bill of someone earning $1 million, according to tables circulated by the three council members.
Allen said that only about 5 percent of residents earn enough to meet the threshold to pay the higher taxes, whether they are single, married or head of household. “These tax increases will allow the District to bring thousands of residents out of homelessness,” he said. “It can remove some of the daily traumas those experiencing poverty endure.”
Many of those who spoke against the measure said they were in favor of the programs the tax increase would bolster — but called the proposal itself rushed.
Council member Brooke Pinto (D-Ward 2) said a more formal process, potentially through a Tax Revision Commission that would be funded in this budget proposal and is dedicated to studying the subject, could lead to “holistic reforms” to the city’s tax system. Council member Mary M. Cheh (D-Ward 3) pointed to a nixed proposal by Mendelson last year to tax advertising, and said a more thorough process “gives us the time and information to do it right.”
“I have great concerns that we don’t have a full picture of the ramifications of this proposal,” Cheh said. “It’s tremendously important that the council understands any effect on the tax code on residents and businesses. . . . What might be bearable for some might be a hardship for another.”
Bowser (D) did not express an opinion on the tax increase to the council before its vote, and did not respond to The Washington Post’s request for comment. The entire budget, including the tax proposal, will head to Bowser’s desk for her signature or veto after the council’s second vote in August.
The District offers low-income wage earners a tax credit that is worth 40 percent of the credit that they receive on their federal taxes — which is already, by some measures, a higher percentage than any state’s match. The council members’ proposal would raise the value to 55 percent of the federal credit, and would direct the city to pay out the credit in monthly installments rather than an annual sum.
Nadeau said that the plan would also subsidize 1,267 new permanent supportive housing vouchers for residents who are homeless or at risk of becoming homeless.
Former D.C. mayor Anthony Williams, who now leads the Federal City Council, a pro-business group, said he was concerned the council voted to raise taxes when D.C. lawmakers have billions of dollars from the federal government at their disposal over the next few years.
The tax increase could cause some high-earning workers to hesitate about moving into the city, he said.
“We’ve got to match real, legitimate concerns facing the District with real concerns about maintaining a sustainable revenue base,” Williams said. “This is not a good time to raise taxes — you have a revision commission, you’ve got a lot of money right now — what does that say to the world?”
Yesim Taylor of the D.C. Policy Center echoed Williams’s concerns, adding that raising taxes now could make it more difficult to do so again if necessary in 2025, when federal coronavirus aid dries up. D.C. officials have remained optimistic that the city can recover from significant dips in sales and real property tax collections during the pandemic.
“We’re betting everything will go back to normal. We’re betting growth will continue — it may or may not,” Taylor said. “Good tax policy extracts the revenue it can without disrupting people’s decisions. Advocates say rich people won’t move out, it won’t interrupt anything, but we just don’t know.”
During budget negotiations last year, the council struck down a similar proposal from Allen to raise marginal tax rates on incomes above $250,000.
The 2020 measure failed on an 8-to-5 vote. Two of the legislators who voted against the proposal, Brandon T. Todd (D-Ward 4) and David Grosso (I-At Large), are no longer members of the council. Todd was replaced by Lewis George, and Grosso was replaced by Henderson, who voted for the tax increase after successfully introducing an amendment modifying the authors’ plan for spending part of the revenue to increase the salaries of day-care workers.