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Recently, DC mayor Vince Gray released his proposal to balance the District’s budget. In sharp contrast to the cut-heavy budgets being debated in most places around the country, Gray’s budget would use increased revenues, including taxes, to close over 40 percent of the gap. Particularly encouraging are Gray’s proposals to raise taxes on corporations and high-income earners.
One of the most significant revenue-raisers in Gray’s budget is the creation of a new tax bracket of 8.9 percent on incomes over $200,000. DC’s current top bracket of 8.5 percent kicks-in at just $40,000 of taxable income.
Gray’s plan also wisely decouples the District’s income tax code from one of many federal income tax cuts extended last year — the repeal of the “Pease” limitation on itemized deductions for high-income taxpayers. ITEP has recommended decoupling from the repeal of Pease on multiple occasions.
In addition to these reforms, Gray’s budget also recommends implementing combined reporting of corporations’ profits in different jurisdictions, and increasing the minimum franchise tax on firms with gross revenue over $1 million.
Consumption taxes are relied upon to generate most of the remaining revenue boost contained in Gray’s budget. Specifically, Gray is seeking to make the city’s temporary sales tax increase permanent, raise the parking garage tax from 12 percent to 18 percent, increase the off-premise alcohol tax from 9 percent to 10 percent, and expand the city’s sales tax base to include purchases of live theater tickets.
Unfortunately, while Gray’s budget is quite reasonable on the revenue side, its spending proposals are much harder to stomach. As the DC Fiscal Policy Institute has pointed out, human services and other low-income programs fare very poorly under the plan. These programs account for only one-fourth of the city’s budget, yet two-thirds of the spending reductions pitched by Gray would come from slashing this part of the District’s safety net.