DC Tax Revision Commission Roundtable Testimony, DC City Council

12/9/97

Revision of DC's tax structure should be designed to improve the

quality of life of all our residents. We live in a city of crisis with 1

in 3 DC children living in poverty, 1 in 4 children under 12 years old

hungry or at risk of being hungry, and infant mortality rate still twice

the national average. Yet in the last two and a half years, devastating

budget cuts have been enacted and more cuts are included in the 1998

budget. Combined with the implementation of the national welfare law,

these budget cuts will have very serious consequences for DC's

children. The number one priority of our city's budget decisions should

be the welfare of our children, but not apparently for the DC government

and Control Board. Cuts in AFDC benefits began in the fall of 1994 with

the Council's 10 to 1 rejection of a cost of living increase in spite of

the fact that the benefit level at the time was below the poverty limit.

Maximum welfare benefits had by 1996 declined 46% from 1970, adjusted

for inflation (P.T. Kilborn, New York Times, 12/8/96). So what has the

Council done? Cut the benefit level even further (three times in 7

months)! This drop in income security for the poor, and the institution

of workfare is bound to pull down the wages of low and middle income

workers.

Other cuts have resulted in reduction of shelter capacity for

families, subsidized child care slots, drug treatment, closure of public

health clinics and recreation centers and elimination of the chore aide

program for seniors and disabled. The list of hurtful budget cuts goes

on and on. One of the cruelest was the elimination of emergency

assistance for rent, mortgage, utility and furniture payments for

families at the edge of eviction. Totally unacceptable cuts have been

made in the budget for the University of the District of Columbia

resulting in loss of faculty, staff and decline in quality of academic

programs. Municipal workers are losing their benefits or being fired

with no provision for retraining or job placement. Once unemployed,

these individuals find that the maximum unemployment benefit has been

cut even though the fund is perfectly solvent.

The District government and Control Board now stand in clear

contempt of the UN Convention on the Rights of the Child (signed by U.S.

on 2/16/95) which upholds the right of children to the highest standard

of health and medical care attainable, with special emphasis on the

provision of primary and preventive health care, public health education

and the reduction of infant mortality.

There are two wars going on in the District- the war against

democracy and the war of the rich against the poor and "middle class".

The budget deficit has been used to explain the necessity of these

inhuman cuts. For the last two years the Control Board and most on the

Council have told us there is no alternative to devastating budget cuts

impacting the poor, children, UDC, municipal workers etc., since we must

balance the budget under Control Board legislation. However, we have

been "sold a bill of goods".

There is an alternative. The budget can be balanced, reversing

the devastating cuts voted since late 1994, amounting to some $100

million, and even providing the necessary increases to maintain the

safety net and increase not decrease funding for UDC by putting the

"burden" on those most able to bear it, the most affluent in our

community, by:

1) Raising state income taxes on high income brackets,

restructuring this tax to make the DC local/state tax system

progressive.

DC now has a regressive state and local tax system (even worse

than a "flat tax"); according to the Citizens for Tax Justice, in

1995, the poorest fifth and middle income families paid 9.5 to 10.5% of

their income as state/local taxes, while the richest (average $1.8

million family income) paid 6.4%, after federal deduction offset! In

1995, those filling federal tax returns with adjusted gross incomes over

$100,000 had a taxable income of $3.04 billion, those over $200,000,

$1.88 billion! If those with adjusted gross incomes over $100,000 were

taxed an extra 4%, $120 million a year in revenue would roll in.

(Source: IRS, Statistics of Income Bulletin v.16, No.4, Spring 1997) A

frequency articulated myth is that DC residents are ôovertaxedö compared

to surrounding jurisdictions. While combined state and local tax rates

in 1995 were slightly lower in Virginia than in DC and Maryland, DCÆs

rate for the lowest 20% income group (less than $31,000) was 10.5%

compared to 10.8% for Maryland. The $111,000 to $567,000 income bracket

of DC residents actually paid a slightly lower rate than the

corresponding bracket for Maryland (see attachments from Citizens for

Tax Justice study).

2) Raising commercial and residential property tax rates on the

highest assessed property (and/or assess those properties, especially

commerical property, at their true market rate, an objective of

Initiative 51, passed overwhelmingly by DC voters) SEIU Local 82

economists estimated two years ago that a 0.5% increment in the big

commercial property tax rate (making it comparable to other major

cities) would generate $166 million in revenue a year. Fair assessment

alone would provide some $40 million a year in additional revenue. The

Council has postponed the implementation of Initiative 51 until 1998, in

line with their craven posture to the Control Board and Board of Trade

(the Control Board was considering recommending the nullification of

Initiative 51 but apparently for political reasons left the dirty work

for the Council).

Note that the District government can still revise its own tax

structure under the Home Rule Act. Like any legistative act of DC

government it is subject to Congressional review. However, the long

range solutions such as a higher federal payment or statehood are of

course outside the scope of unilateral DC action since they require

Congressional and/or Executive initiation and approval.

Increasing the tax rate on the wealthy in DC should also include

lower tax rates for low and moderate income residents, in particular,

tax relief for small businesses in the District. In 1995, only 10% of

the total state tax liability came from those individuals making less

than $30,000. Revenue from the outlined increases would come from DC

residents, or owners of DC property, not from the federal government nor

even from nonresident DC workers. More millions of dollars in revenue a

year could also come from efficient collection of taxes and fines ($60

million), and the renegotiation of public give-aways to Abe Pollin ($240

million) (source: Sam Jordan, DC Statehood Party).

Rather than the so-called ôtough loveö for the poor (equals

callous indifference) we need tough love for the wealthy, sharing the

wealth to meet human needs in the District. Luxury spending is booming

in the Metro DC area. Is another European vacation or Lexus this year

really worth children going hungry, the poor not receiving health care,

our youth not getting the higher education they deserve? It is no

accident that the United States has the greatest gap between rich and

poor families and the highest child poverty rate of practically all

industralized countries (Washington Post, 3/29/97). The "dirty little

secret" of economics is that concentration of wealth at the top leads to

poverty and misery at the bottom.

But wouldn't raising taxes on the wealthy drive them out of the

District and erode our tax base? On the contrary, the benefits of living

in the District (shorter commuting, cultural opportunities etc.) have

attracted these residents in the first place. Commuting time and costs

will likely increase in the next decade (Washington Post, 3/27/97). The

more affluent have been moving into the District for the last decade,

buying houses, while low income renters have been moving out

(Washington Post, 3/3/97) Reducing the "misery index" in the District

would of course benefit the wealthy as well as the rest of the community

by reducing crime, stimulating consumer spending and reducing class and

racial polarization.

And if the wealthy don't like the idea of paying higher taxes,

they should join in and lobby for the long term solutions to our

budgetary crisis, our crisis in meeting basic human needs, requiring

Acts of Congress, which include the following:

1) a fair federal payment for nontaxable property and services

provided by the District, roughly 3 times the payment of $660 million

per year made prior to the passage of the Economic and Tax Incentive

Package

2) a reciprocal income tax (a 2% tax on non-resident income

would bring in $470 million per year)

3) Payments in Lieu of Taxes ("PILOTS") from federally-chartered

tax exempts (Sallie Mae, National Geographic etc.) would bring in some

$150 million per year

4) Making Fannie Mae pay income tax ($300 million per year)

5) Statehood, democracy, not dictatorship by the Control Board

Junta. The ClintonÆs Economic and Tax Incentive Package and proposals

such as the Norton "progressive" flat tax are seductive nonsolutions to

our crisis which combine long discredited "trick-down" economics with

continued neocolonial status for the District. Only real self

determination in the form of statehood and sharing the wealth of our

community can measure up to the needs of our people (See Sam Jordan's

article in the April 1997 PeaceLetter; write to DC Statehood Party, 1518

Kearney St. NE, DC 20017 for a copy).

The only effective way to protect and expand the satisfaction of basic

human needs in this city is to mobilize the broadest coalition of all

those being adversely affected by the so-called fiscal crisis. People

before profit! Children First!

David Schwartzman

dws@scs.howard.edu

Deputy on Tax Issues

DC Statehood Party