D.C. Council Approves Impressive Tax Reform

May 29, 2014

By Joseph Henchman

The District of Columbia Council yesterday approved, by an 11-2 vote, a budget that includes nearly all components recommended by the Tax Revision Commission back in February. As we noted last month, the recommendations balance competing priorities to improve the simplicity, fairness, neutrality, and economic competitiveness of the District’s tax system. Their implementation by the District represent a major improvement for its tax system.

The Tax Revision Commission had concluded that the District’s current tax system has three major shortcomings: (1) middle-class residents pay a relatively large share of their income in District taxes; (2) business taxes are too high; and (3) the District’s tax base is too narrow. The Commission’s recommendations seek to address these issues with reforms to the individual income tax, business taxes, sales tax, and estate tax (see Table below). All told, it is a net tax cut of approximately $67 million per year (out of a $10.6 billion budget).

The Council's action is also a bit of a rebuke to lame duck Mayor Vincent Gray (D), as Gray had mostly ignored the Commission's recommendations. (The Council also reduced the speed of construction for the District's yet-to-open streetcar system.) Credit seems to go to council Chair Phil Mendelson (D), who apparently revived the Commission's recommendations in the 24 hours before the vote. The two leading candidates for Mayor, Councilwoman Muriel Bowser (D) and Councilman David Catania (I), both supported the plan as well.