Tax Competition Reaches The Liberal Bastion Of Washington, D.C.
This week one of the key Democratic Party strongholds voted to reduce income taxes and expand the sales tax base. The District of Columbia Council, which in 2012 supported President Barack Obama over challenger Mitt Romney by a wide margin of 13 votes to 1 (in a city where 90.9 percent of voters selected Obama), passed a pro-growth tax reform package that, if signed into law will:
expand the sales tax base,
reduce income taxes for individuals and businesses,
increase the Earned Income Tax Credit to 100%,
recouple estate taxes to federal levels, and
save taxpayers about $67 million per year.
Mayor Vincent Gray has until July 8th to approve or veto the bill. Considering the near-unanimous (12 to 1) Council vote, indications are good that this bill will become law in our nation’s capital.
The D.C. Council’s vote was informed by the May 2014 Final Report of the D.C. Tax Revision Commission, a blue-ribbon panel created by the Council in 2011 and composed of members appointed by Mayor Vincent Gray and the D.C. Council chair at the time of the Commission’s authorization. The Commissioners provide a broad range of perspectives and include residents, a former D.C. mayor, the Deputy CFO of the D.C. Office of Revenue Analysis, senior economists, fiscal policy experts, investment analysts, and the executive director of Community Tax Aid, Inc., a non-profit that provides low income families in D.C with free, year-long tax assistance.
The Commission held 26 public meetings, considered 27 expert presentations, gathered related information from District agencies and departments, and considered 63 tax policy options. The members also looked at several factors that are contributing to the District’s current economic position along with future projections.
According to the report, the District maintains a budget surplus and is faring better in post-recession recovery than other areas largely due to increasing its number of residents, businesses, and jobs. In fact, growth in the non-government employment sector is making up for loss of federal jobs.
But, the Commission also pointed out that the District’s current economic picture could drastically change. The report suggests that the District needs to revise its tax system to one that reduces the penalty on work and entrepreneurism and broadens sales tax to include services that are currently exempt, while increasing exemptions for lower income families. Sound familiar? These are the same recommendations that are being made in several states across the country and being vilified as “unfair” by big-government, anti-growth, special-interest groups.
It is no surprise that the District currently ranks 44th overall in the 2014 Tax Foundation State Business Tax Climate Index. The District also ranks woefully low when one digs deeper into specific taxes, such as corporate, individual, and property tax ranking.
In this article, Heritage Foundation economic policy experts Stephen Moore (with whom I co-authored The Wealth of States) and Joel Griffith reference the recent Thumbtack.com Survey of Business Owners as providing additional evidence that, “…business-friendly states tend to trounce the others in several key measures.” The District of Columbia apparently couldn’t agree more after looking at the impact of its current tax policies, and wisely set forth a plan to encourage more business owners to locate there.
The evidence that taxing income hurts families and small business owners (i.e., job creators) is clear. So clear, in fact, that a growing number of Democrats in Maryland, Missouri, and now the District of Columbia support this sound economic principle.
It has been just over two years since the Wall Street Journal proclaimed, “The tax competition in America’s heartland is an encouraging sign that at least some U.S. politicians understand that they can’t take prosperity for granted. It must be nurtured with good policy, as they compete for jobs and investment with other states and the rest of the world.” One can only wonder how this shift might encourage similar support from other elected officials, not to mention voters in upcoming elections.
