The D.C. Council on Wednesday unanimously approved a $10.8 billion budget plan, rejecting Mayor Vincent C. Gray’s proposal to raise income taxes on the wealthy but reviving a once-unpopular proposal to tax out-of-state bonds.
Council Chairman Kwame R. Brown’s spending plan restores funding to services for the homeless and other programs, even as it attempts to plug a $322 million budget gap. It also should satisfy bond raters on Wall Street by devoting 50 percent of additional revenue to the District’s general fund balance.
“I am confident that history will record this budget as a defining moment in this city,” Mr. Brown said.
The chairman’s budget does not include a sales tax on live theater tickets, yet it does raise the alcohol tax from 9 percent to 10 percent and the parking garage tax from 12 percent to 18 percent.
Mayor Vincent C. Gray said he was disappointed that his proposal to raise the income tax on households making more than $200,000 was removed, but he said he would sign the spending plan when it reaches his desk.
In a letter to the chairman, the mayor said the income-tax increase “has received a full public vetting during this budget cycle, while a tax on bonds has not.”
Some council members tried, but failed, to restore the income tax proposal during discussions.
Mr. Brown fulfilled a long-standing promise by avoiding an income tax increase. Instead, he inserted a provision that would raise about $13 million by taxing the income D.C. residents earn from interest on out-of-state bonds.
The tax break in the past has protected D.C. residents who buy bonds issued by other states and localities selling them to fund infrastructure improvements.
Local governments typically don’t tax in-state municipal bonds as an incentive for residents to buy them. The District is the only jurisdiction in the United States that does not tax out-of-state bonds, largely because the bonds have not been available in the city in the past.
Increasing the income tax on wealthier households from 8.5 percent to 8.9 percent would have created the highest bracket in the region.
“To me, the choice is simple,” Mr. Brown said.
But Jim Graham, Ward 1 Democrat, preached caution on the out-of-state-bonds tax, even though he supported the measure. He said he has co-authored similar initiatives only to have majority support among the council “evaporate” amid complaints from city residents.
The council in 2002 adopted a similar tax but quickly repealed it amid objections.
A contingent of lawmakers was able to insert an amendment that could affect negotiations ahead of the council’s final vote on the budget, scheduled for June 14.