May 2019Policy

By offsetting federal tax cuts, we can improve the quality of life for DC residents

Affordable housing for the majority of DC residents is disappearing. Virtually the only housing still affordable for low-income residents is public housing, and our mayor has proposed zero funding for badly needed repairs. Yet DC has a sizable tax base to fix public housing and address other unmet needs of the low-income community. Here is the evidence.

A month after the 2016 election, The Washington Post’s economics columnist Steven Pearlstein argued that states should offset any federal cuts in income and business taxes by raising their own rates. The DC Council now has the opportunity to apply this advice locally, and in doing so make a big positive impact on the quality of life for all residents. This incremental revenue should be targeted to the repair of public housing and sharp reduction of child poverty and homelessness, which remain at shockingly high levels compared to the 50 states and major cities.

Misha Hill of the Institute on Taxation and Economic Policy (ITEP) has estimated that the top 20 percent income bracket of DC residents will receive almost $700 million in federal tax cuts this year, with most ($541 million) going to the top 5 percent (with incomes above $319,000 per year). The same study finds that $265 million could be recovered as additional revenue by raising the marginal rate of the DC income tax for millionaires to 11.95 percent (or 2 percent above what they are paying now), with lower rates for those earning less than millionaires but making more than $200,000 annually. According to the Internal Revenue Service, the cumulative taxable income of DC residents with an adjusted gross income of above $200,000 in 2016 was $12.8 billion, and it’s likely even higher now. Note that recent poll results have 85 percent of DC voters supporting large-scale investment in public housing paid for by a 3 percent tax on income over $200,000.

DC families with average incomes of $55,000 per year pay 9.8 percent of their income in DC taxes while the top 5 percent pay 9.4 percent, according to the Institute on Taxation and Economic Policy’s report on “Who Pays?” Raising the marginal DC income tax rates of wealthy residents would make DC stand out with virtually the most progressive tax structure in the nation — a policy that would help to reduce DC’s very high income inequality, a proven driver of bad outcomes for all residents. Note that the top 1 percent of families in California (whose incomes average $2.14 million per year) pay 12.4 percent of their income in state taxes; in comparison, the top 1 percent in DC (whose incomes average $2.26 million per year) pay 9.5 percent, according to the “Who Pays?” report.

For these reasons, the Fair Budget Coalition — which advocates for a District budget and public policies that address poverty and human needs — included “offset federal tax cuts locally” in its platform for fiscal year 2020. The coalition’s membership includes human and legal service providers, community members directly impacted by poverty, professional advocates, faith organizations and concerned DC residents [MDC DSA is a member of the Fair Budget Coalition].

This is low-hanging fruit — let’s grab it while we can, using it to repair public housing and to eliminate child poverty and homelessness. By doing so, we can bring DC closer to becoming a real human rights city, fulfilling its 10-year-old commitment, as outlined in the 2017 report of the DC Human Rights City Alliance. For more documentation, visit the DC Citizens for Tax Justice website or watch our video.

David Schwartzman, an MDC DSA member, represents the DC Statehood Green Party on the Fair Budget Coalition and is webmaster of the DC Citizens for Tax Justice. This article first appeared April 10 in The DC Line.

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