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A number of important changes to the District of Columbia’s tax laws will go in effect in the months ahead as part of a budget passed by the DC Council earlier this summer.  A detailed budget toolkit assembled by the DC Fiscal Policy Institute’s (DCFPI) notes that the budget raises $72 million in new revenues, but that it does so largely through traffic cameras and improved tax enforcement—not broad-based tax increases.  Some of the more notable tax changes in the budget include:

Expanding the District’s property tax “circuit breaker” credit, known as Schedule H.  Much like an electrical circuit breaker, DC’s Schedule H “circuit breaker” is designed to protect taxpayers from a property tax “overload”—a situation where property taxes grow too high relative to their incomes.  Prior to this summer, DC’s circuit breaker credit hadn’t been updated for 35 yearso.  Under the expanded credit, the income cut-off for eligibility will rise from $20,000 to $50,000 and the credit’s maximum benefit will grow from $750 to $1,000.

Reforming the gasoline tax.  The District joins Maryland, Massachusetts, Vermont, and Virginia in reforming its gas this year in order to improve its long-term revenue growth.  By switching from an unsustainable fixed-rate tax to one equal to 8 percent of gas prices, DC will be better positioned to pay for the gradually rising cost of public infrastructure in the years ahead.  The Institute on Taxation and Economic Policy (ITEP) testified in support of this reform in June.

Cutting the sales tax rate.  On October 1, the District’s general sales tax rate is scheduled to fall from 6 to 5.75 percent.  While the change will be progressive overall, DCFPI’s proposal to expand either the standard deduction or personal exemption would have been better targeted to lower- and moderate-income District residents, as opposed to largely benefiting tourists and nonresident commuters.

Exempting interest income on out-of-state government bonds.  The least defensible tax change contained in the DC budget is the reinstatement of an unusual and regressive tax break for people investing in out-of-state bonds.  North Dakota is the only state offering such a break.  Three out of every four dollars of tax exempt interest flows to households with total incomes over $200,000.

For more information on DC’s budget and the tax changes it contains, be sure to read DCFPI’s budget toolkit.