When Republican lawmakers muscled an overhaul of the federal tax code through Congress, they celebrated a provision that doubled the exemption from the estate tax, erasing the tax liability for individuals with estates worth less than roughly $11 million.
The provision was a coup for many conservatives who have long railed against what they call a “death tax.”
Now Democratic lawmakers in the District are maneuvering to undo it at the local level.
A proposal that has garnered the support of a majority of D.C. Council members would cut in half the estate-tax exemption in the nation’s capital, to $5.6 million. Council member Charles Allen (D-Ward 6), who first floated the idea, wrote in a letter to other legislators in the past week that the resulting revenue generated for the city — about $6.5 million in the coming fiscal year’s budget — could be used for housing and education programs.
“The Trump tax plan just gave away tax breaks to incredibly wealthy households,” Allen said in an interview. “It’s a decision made by Congress, where we don’t have any say in it. I don’t think we should be tied to the federal government on that.”
The District loosened its estate-tax exemption, which previously stood at $2 million, as part of wide-ranging tax cuts enacted in 2014. Those cuts — funded by excess revenue that poured into city coffers from a booming economy — were recommended by a commission led by former mayor Anthony A. Williams and were aimed at making the District more economically competitive with Maryland and Virginia.
An element of the legislation had unintended consequences for the city.
D.C. legislators chose to peg the local estate-tax exemption to the federal level, which this year would have been $5.6 million for individuals. When Congress doubled the federal exemption, the District’s pegged exemption automatically followed suit.
Allen, along with nine other members of the 13-seat council, introduced a bill in February that would decouple the District’s local estate-tax exemption from federal law and reduce it to the amount originally envisioned by city lawmakers, raising taxes on wealthy households.
However, that bill has been held up in the council’s finance committee, whose chairman, Jack Evans (D-Ward 2), opposes further changes to the local estate tax.
Evans said the local and federal tax cuts that have taken effect in recent years should be considered in totality.
An analysis of last year’s federal tax bill by D.C. Chief Financial Officer Jeffrey S. DeWitt found that nearly half of District taxpayers would receive higher local bills as a result of the legislation, generating an additional $50 million per year for the city. (When federal taxes are also considered, just 17 percent of D.C. taxpayers would experience an increase in their net individual obligation.)
“To decouple from the estate tax and not do anything else probably doesn’t make any sense, because it’s one big package,” Evans said. He added that lowering the exemption level could harm the District’s competitiveness with neighboring jurisdictions.
Allen is now urging that the estate tax increase be incorporated into separate legislation attached to the annual budget, a process that would circumvent Evans’s committee. The council typically finalizes the coming year’s budget by mid-June.
Under Allen’s proposal, about $2.5 million of the resulting extra revenue would go to housing for victims of domestic violence, $1.5 million would be spent on housing vouchers and $1.25 million on education. An additional $500,000 would go to a program that helps poor families buy produce at farmers markets.