We are a work in progress. Below you will find some ideas to make Tax Justice in DC a reality. Our goal is to promote a community-wide dialogue on tax and revenue approaches that will decrease our record income inequality and eliminate poverty for all our residents, starting with our children..
Update (January 20, 2017):
With Trump’s “election” and a Republican Congress, DC Statehood will be put on hold for the next four years and we can expect even less from the federal government from the incoming administration. Hence, we must push the limits of the Home Rule Charter even harder to generate revenue needed for our DC budget to better address the needs of our working class/low-income residents. This approach will empower the struggle for DC Statehood.
1) We have a new opportunity to make the DC tax structure more progressive. Given the likely implementation of federal tax cuts for the wealthy, an objective of Trump and Ryan, as unwelcome as they are, they will create even more justification for raising the DC income tax rate on wealthy residents.*
According to a CTJ analysis the top 1%, averaging $1.7 million/per year, would get a tax cut of $88,410 in the Trump plan (Source: http://ctj.org/pdf/trumprevised0926.pdf). In 2014, the most recent data available, DC returns with adjusted gross incomes of $1 million and above had a taxable income of $4.59 billion, while those with AGI of $100,000 and above had a taxable income of $16.3 billion (IRS data, http://www.irs.gov/uac/SOI-Tax-Stats-Historic-Table-2; open DC on the map). For those with greater than $1 million income in DC (AGI), taxpayers in DC, numbering 1,850 in 2014 (the most recent data), this cut would be equivalent to a 3.6% increase in their DC income tax burden, and they would get back about 1/3 of this from their federal deduction offset. This would correspond to millionaires paying 8.8%, compared to working class residents (averaging $40-50,000/year) now paying 10.4% of their income in DC taxes, still regressive but less so than now. A 3.6% hike in the DC income rate for millionaires would generate $165 million extra revenue. A 1% hike for those earning over $100,000 to $1 million would generate another $117 million per year. (Note: These estimates are likely lower limits for Trump’s plan since the CTJ analysis uses average income, not AGI which corresponds to the IRS data.) Plus, this can be implemented without any increase in the overall tax liability (federal plus DC) of wealthy residents (of course they should pay even more)! Even if the federal deduction offset were eliminated we would still come out ahead.
2) DC government should move forward with a DC Public Bank (http://www.dcpublicbanking.org/) , and DC Public Power (https://www.dcpublicpower.org/), thereby generating living wage DC jobs in programs for affordable housing and sustainable economic development.
*Millionaires in DC area now pay between 60 and 70% the rate in their local tax burden that working and middle class residents pay, lower than all but the poorest residents, with working class residents with family incomes of $40 to 50K having the highest burden (“Who Pays?”, ITEP) when the advantage afforded by the federal deduction offset is included.
Next automatic tax cut will benefit low to middle income residents the most:
The District is expecting a boost in revenue, and that means another automatic tax cut for D.C. residents.
“The revenue forecast for 2017 is up by $35.7 million, according to a letter sent by CFO Jeffrey DeWitt to D.C. Mayor Muriel Bowser and D.C. Council Chairman Phil Mendelson. The latest District tax cut is just part of a schedule of pre-arranged cuts tied to recurring revenue. That means District residents will see their standard tax deduction rise from $5,200 to $5,650 for individuals, $6,500 to $7,800 for heads of households and $8,350 to $10,275 for married couples filing jointly. The tax cuts kick in Jan. 1 and apply to the 2017 tax year. In 2014, the council passed a schedule of cuts that would automatically go into effect as revenue climbed, as long as recurring revenue projections showed an increase over the previous year. And while the cost of the new tax cut is substantially less than the new revenue (about $9.3 million) it is because much of the new revenue is considered “non-recurring,” which is the measure for when these automatic tax cuts kick in. For example, taxes on estates can vary dramatically from year to year.”
Here is my analysis of DC's regressive taxes and alternatives that would go a long way to "defeating poverty" in DC if implemented. I also invite all of you to read the most recent Report on State of Human Rights in DC, issued on December 10, 2015; available at http://afsc.org/resource/report-state-human-rights-dc. This report is an assessment of the human rights record of our local and federal governments since DC self-declared itself as a Human Rights City, on December 10, 2008, the first U.S. city to do so. Our District government and elected officials received Fs for Poverty reduction and income equality and welfare of children. Seven years later the grades are D minus and F.
David Schwartzman, firstname.lastname@example.org
Tax & Budget Coordinator, Representative to the Fair Budget Coalition
DC Statehood Green Party
Professor Emeritus, Howard University
First, please check out the 2015 tax burdens of families as function of income for DC, MD and VA, all can be downloaded at: http://www.itep.org/whopays.
DC's tax burdens:
The top 5% income bracket in DC now pays a lower rate than MD but higher than VA. And all show regressivity above about $50-54K family income when the federal deduction offset is included. DC millionaires (average family income of $2.8 million) now pay a lower effective DC tax rate (6.4%) than all but the poorest families (bottom 20% income bracket, average family income of $13.6K , paying 5.6%). The heaviest overall tax burden is 10.3% for families averaging $52.1K a year.
An ITEP Simulation of the Fiscal Year 2015 Support Act of 2014 (B20-750) , passed by the Council (June 24, 2014)
This ITEP simulation is telling us that fully phased-in, B20-750 would leave the top 1% of families, averaging $2.4 million annual income paying an effective rate of 6.3% of this income in DC taxes while families earning an average $50,200 will still pay the highest rate, 10.1%, getting tax relief equal to $351 a year, while those families earning $12,600 (average of the bottom 20%) will get relief equal to $189, leaving many if not most in poverty. This is not a progressive tax plan, recognizing in addition the unwarranted tax cuts for business. See graph below.
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On March 12, 2014, the Fair Budget Coalition lobbied the Council and the Mayor to raise the income tax rate to 9.5% for taxable income between $150,000 and $350,000 and to 10% for taxable income above $350,000. Applying these tax rates in 2015, using the most recent taxable income estimates available, ITEP found these modest hikes in top tax rates would generate $98.2 million in additional revenue, which could fund enhancements to low-income programs and provide tax relief to low income residents. Note that the pattern of regressivity remains, with the top 5% income brackets paying a slightly higher percentage of family income than before these tax hikes are applied (see ITEP-generated simulation below and compare to the 2015 DC Who Pays shown above).
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MY CRITIQUE OF THE FINAL RECOMMENDATIONS OF THE TAX REVISION COMMISSION
February 12, 2014
The final recommendations report of the Tax Revision Commission (TRC) is to presented to the Committee of the Whole, DC City Council today by Tony Williams, former Mayor and Chairman of the TRC.
I clap for the final recommendations of the Tax Revision Commission (TRC) weakly with one hand, for the modest tax relief for low-middle income folk. If the City Council implements their recommendations it will make our tax burdens for families mildly less regressive than before but with the same pattern as now, a hump at about $50K, with the top 1% still paying a rate near the bottom 20%; see 3rd Chart below, labelled "DISTRICT OF COLUMBIA TAXES UNDER THE TAX REVISION COMMISSION'S RECOMMENDATIONS".
However, and this is important, implementing the TRC recommendations will result in a cut in anticipated revenue of $38 million for FY 2015 instead of a badly needed increase in revenue, imperative to better fund low-income programs, e.g., TANF income support which is now below the federal poverty level. We cannot assume that potential future surpluses will enhance the low-income budget.
The Institute on Taxation and Economic Policy (ITEP) just released its study on the impact of the TRC final recommendations.
Specifically, with full implementation of the these final recommendations;
The lowest 20% of families, averaging $12,600 annual income will receive approximately $50 benefit/year
The 2nd 20% of families, averaging $28,800 annual income will receive approximately $140 benefit/year
The middle 20% of families, averaging $50,200 annual income will receive approximately $200 benefit/year
While the average of the top 1%, earning $2.36 million annual income will pay 0.3% more in taxes ($7,080/year), this very modest increase will not apply to the top 0.1%, i.e., multimillionaires, who will pay LOWER DC taxes because the provision capping personal exemption in the TRC recommendations (#5g) will be more than cancelled out by the reduction in the marginal rate to 8.75% for the wealthiest taxpayers, down from the present 8.95%. Our wealthiest taxpayers now have an overall DC tax rate lower than all but our poorest residents. An ITEP study indicates that a typical family with a taxable income of $20 million would pay 0.2% ($35, 000) less taxes than under the present structure if the final recommendations of the TRC are implemented. In other words, Tony Williams, Chairman of the TRC and CEO of the Federal City Council (FCC) with support the other two members of the FCC on the TRC, was able to get unanimous support on final recommendations that if implemented by the Council will result in lower tax payments from the most wealthy DC residents. Note that in 2011, the most recent data available, DC returns with adjusted gross incomes of $1 million and above had a taxable income of $3.3 billion. Those returns with adjusted gross incomes of $100K per year and above had a taxable income of $12.4 billion, 67% of the DC total, while making up 22% of all returns (IRS data, http://www.irs.gov/uac/SOI-Tax-Stats---Historic-Table-2).
Here are some measures that our local elected government should adopt for a more just DC tax structure and budget:
1) Add a progressive sales tax credit in the DC income tax structure which would generate even more tax relief for low-middle income folk, since the sales tax is the most regressive DC tax. Support the TRC recommendations to expand the Earned Income Tax Credit for workers without children in the home, and raise the standard deduction and personal exemption to Federal level.
2) The TRC recommends that the top marginal rate be reduced from the present 8.95% to 8.75%. Rather, the top marginal rate should be raised not lowered ! This is the only way the DC income tax on families/individuals will generate more revenue, rather than less, and make a real impact for progressivity. The Fair Budget Coalition is supporting raising the income tax rate to 9.5% for taxable income between $150,000 and $350,000 and to 10% for taxable income above $350,000. A tax hike for the top 5% is very reasonable, recognizing their big boost in taxable income and the fact if such a hike were implemented they will offset a significant fraction of their higher DC income tax liability by including this in itemized deductions in federal income taxes. Using the 2011 IRS data already cited, a 1% hike in their overall tax rate would generate $30 million more revenue for the District’s budget. A 0.5% tax hike for those residents with taxable income above $100,000 would generate $63 million additional revenue.
3) The TRC recommends business tax cuts amounting to $57 million for FY 2015, growing to $65.4 million by FY 2018. Rather there should be no lowering of business tax rates except for small businesses. Ed Lazere from DCFPI and others have proved that business taxes in general are very comparable to surrounding jurisdictions and there is no valid argument to reduce them.
4) Keep the present DC Estate Tax $1 million threshold rather than raising it to the Federal threshold of $5.25 million as the TRC recommends translating into a $13.9 million cut in projected revenue, again for FY 2015.
I continue to argue that incremental revenue from a truly progressive DC tax structure should be targeted to underfunded low-income programs (see my November 12, 2013 testimony on the TRC’s website for a proposal for a steadily progressive and simplified DC tax structure based on a flat percentage of the Federal income tax liability: http://www.dctaxrevisioncommission.org/#!documents/cp9p).
The 4th Chart below shows the impact of this approach.
Go to the TRC website for their final recommendations, report to the Council, testimony and additional information: http://www.dctaxrevisioncommission.org/
The Fair Budget Coalition support for raising the tax rate affecting wealthy residents is very welcome, given the national attention now focused on income inequality, the election of a Mayor in NYC who is committed to raising the top tax rate and of course DC's record income inequality and child poverty level (for more go to the Fair Budget Coalition's website: http://www.fairbudget.org/). Making DC taxes more progressive would be an important step, along with requiring a living wage for all DC workers, towards reducing the income gap and improving the quality of life for all residents, whatever their income.
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BELOW IS A SIMULATION OF STEADILY PROGRESSIVE DC TAXES (ITEP); For details open the tab on this homepage labelled “THERE IS AN ALTERNATIVE: A JUST DC BUDGET AND TAX PLAN”
On March 12, 2014, the Fair Budget Coalition lobbied the Council and the Mayor to raise the income tax rate to 9.5% for taxable income between $150,000 and $350,000 and to 10% for taxable income above $350,000. Applying these tax rates in 2014, using 2010 taxable income estimates, would generate $93 million in additional revenue which could fund enhancements to low-income programs and provide tax relief to low income residents while making our tax structure a bit less regressive (ITEP study).
see the following:
DC Fair Budget Coalition http://www.fairbudget.org/
DC Fiscal Policy Institute http://www.dcfpi.org/
DC for Democracy http://www.dcfordemocracy.org/
DC Jobs with Justice http://www.dcjwj.org/
DC Public Banking Center http://dcpublicbanking.org/
DC Statehood Green Party
Citizens for Tax Justice
Empower DC http://empowerdc.org/
Institute on Taxation and Economic Policy
ONE DC http://www.onedconline.org/