Committee on Human Services testimony

Testimony by David Schwartzman
Tax & Budget Coordinator, DC Statehood Green Party
dschwartzman@gmail.com, 202-829-9063

Fiscal Year 2011 Budget Request Act and Budget Support Act of 2010
Committee Mark-up Schedule - Committee on Human Services
Monday, April 19, 2010
Councilmember Tommy Wells, Chair

After spending District residents’ tax money on wasteful projects such as a baseball stadium for the multimillionaire owners of the city’s baseball team and handing out tax abatements and “sweetheart deals” to corporations like they were so much trick or treat candy, the District now faces a huge projected shortfall in revenue, estimated to over $500 million for the coming fiscal year. Like the Control Board era, there is a real danger that our budget will once again be balanced on the backs of low and middle-income residents.

This process threatens to further defund essential programs in Human Services. And this prospect comes on top of a $50 million cut in essential programs such as child care, TANF, disability support, rent supplement and job training that the Council and Mayor imposed on our present budget. The crisis of everyday living is now a reality for a majority of our residents whose incomes fall below self-sufficiency, meaning that many families go into debt just to survive the current recession, really a depression for low-income folk. Many residents must now choose where their inadequate income must go; will it be to meet the increasing cost of food, rent, utilities and/or medicine this month? 



But there is an alternative to more hurtful budget cuts and the inadequate income support for many of our residents. The Council can and should pass new legislation in this session that would provide substantial tax relief to the bottom 60% income bracket of DC's families (with average incomes below $57K) while generating additional revenue that will help protect essential programs in our budget that serve our low income and working/middle class families and individuals. 

Our tax and revenue plan will couple a hike in the top 5%, with tax relief for the majority of taxpayers and go far in meeting the challenge of the projected shortfall in revenue. Further it would create a long needed progressive structure for DC's individual/family taxes, contributing to a future sustainable revenue base for the future. The time is long overdue for tax justice for the majority, and for wealthy DC residents paying their fair share of DC taxes, so essential programs are better funded in our Budget.

In our plan, most DC families would have more disposable income after paying their taxes.

Examples of the benefit:
Families with
$12,400 (annual income) would have $372 more income than now
$26,300: $815 more income
$45,400: $1,090 more income
$75, 500: $302 more income

Only the top 5%, with average annual income of $443,700 and above would pay more taxes. The overall reform DC income tax structure will generate at least $116 million more revenue annually than the present structure.

Of course, we will hear the oft repeated objection by the empowers of our regressive tax structure and growing income inequality that even modest tax hikes on our wealthy residents would drive them out of the District thereby reducing our tax base. However this argument ignores the fact that the wealthy have been steadily moving into the District in the last two decades, despite the lower tax rates of suburban Virginia (Maryland had until recently a lower tax rate for the top 5% income bracket, but now it is about 1% higher than DC).

In the last twenty years, DC taxpayers in the greater than $100,000 bracket increased in number from 12,000 to over 48,000 (in 2007). In 2007, the year with the most recent data, DC taxpayers with incomes over $200,000 had a taxable income of $8.8 billion (IRS statistics).

It is highly misleading to argue that wealthy DC residents will leave the District if they are required to pay slightly higher rates, given the advantages of living here, namely lower commuting costs and especially time, cultural opportunities etc. A recent study by the Center for Neighborhood Technology found that transportation costs for an average Washington household average $12,000 per year (WP, March 24, 2010, B4). Further, the 31 hours of congested traffic per week on the Capital Beltway alone would discourage most wealthy District residents from considering moving to the suburbs (WP, January 21, 2010, B1). Who will buy their high-priced homes if they move? And as a further step to help prevent a small fraction from moving as well as to fully capture the income tax owed by cheaters who pretend not to be DC residents, the Council should seriously consider hiking the property tax for non-residents. Reducing the income gap and "misery index" in the District would benefit the wealthy as well as everyone else by reducing crime, stimulating consumer spending and reducing class/racial polarization.

Moreover, our plan simultaneously addresses the ongoing hemorrhaging of our revenue to big developers and other corporate interests in the form of unjustified tax exemptions, abatements and subsidies. These giveaways include over $100 million in rent going to private facilities for municipal business instead of using renovated public space and $50 million for renovating seating for the VIPs at the Verizon Center.

The tax system and budget must be made fully transparent and accountable, making possible a detailed review of tax exemptions and abatements for commercial and non-profit properties. Taxpayers and elected officials must be able to evaluate the community benefits (if any) from these tax giveaways to big developers and other corporate interests.

We urge the Council to revise B18-0400 "Exemptions and Abatements Information Requirements Act of 2009" by strengthening the requirements for compliance with penalties.

Finally, according to the DC Fiscal Policy Institute “while 26 states have tapped their rainy day funds to close budget gaps during the current economic downturn — including Maryland and Virginia — the District has not used its $284 million in reserves to address the recession, ” because of Congressional restrictions on its use. DC’s rainy day fund should be used to address this and potential budget deficits in coming years! Since Congress makes these rules, our Delegate to the House Eleanor Holmes Norton should vigorously lobby to make this happen, and lead our community to make this demand on Congress now.

Further our Delegate should immediately submit a bill for DC Statehood, the only way we get two voting Senators plus one voting member of the House, and a permanent end to the potential veto by Congress of legislation and budgets passed by our local government. In other words, we would get the same rights as citizens of the 50 states by becoming the 51st state in the Union. And only DC Statehood will give us the opportunity to implement a tax on income earned by two thirds of the DC's workforce that live outside our jurisdiction by a fair and progressive reciprocal taxation approach.

This plan was developed by Matt Gardner (ITEP economist) and David Schwartzman in December, 2009)

 Note the graphs showing the before (present structure) and after (reform plan outlined below.

The Specifics

1) Tax reform for DC's families
Package includes the following provisions:
a) Base the DC income tax structure on a flat percentage of the federal income tax payment using the pre-Bush federal tax structure, that is with the Bush tax cuts targeted for the wealthy removed, thereby simplifying the payment process and increasing fairness (see Tables below for a comparison). Keep the DC Earned Income Tax Credit.

b) Expand the Schedule H low-income property tax credit in the DC income tax schedule to make it available to middle-income families and individuals, by:
-Raising the income limit for eligibility from $20,000 to $70,000,
-Raising the maximum credit from $750 to $3,000.

c) Include a built-in deduction for sales/excise taxes (the most regressive part of the tax burden, which is having the most impact on low-income residents) directly into the DC income tax form, insuring an overall progressive structure for DC residents. Sales tax revenue from non-residents such as commuters and tourists would not be reduced, since they do not pay DC income tax.

Once implemented, the proposed DC Tax Structure would reduce income tax payments for most DC families and individuals.

d) Rather than going into the General Fund, revenue enhancements shall be targeted to underfunded essential programs in the DC Budget in consultation with Empower DC, Fair Budget Coalition, DC Jobs with Justice and other groups that truly serve the interests of the majority of our residents. 

This package is estimated to increase D.C. tax revenues by at least $116 million annually.

Assessing its impact on taxpayers: Compare our present tax structure to the “Post Reform; please see graphs at: http://www.dcstatehoodgreen.org/testimony/fairtax.

Note: once implemented, the top 1% would receive an effective overall rate increase of 1.9% (after federal deduction offset only 1.3%) and the next 4% bracket a rate increase of 1.7% (after federal deduction offset only 1.4%). If the tax relief for the bottom 60% were reduced then of course the revenue generation would be greater.

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