A D.C. lawmaker in charge of local purse strings thinks an influential congressman's look at a tax on out-of-state residents who work in the District could be a "game changer" for the city's finances.
Council member Jack Evans, Ward 2 Democrat and chairman of the Committee on Finance and Revenue, said he is heartened by Rep. Darrell E. Issa's suggestion — quite out of the blue at a recent hearing on the city's Height Act — that Congress take a post-election look at "how we are going to deal with the only place that doesn't have the ability to tax people who earn their income in that place."
While Mr. Issa's comments did not endorse outright a commuter tax on the large number of residents who flood the city each day — mostly from Maryland and Virginia — it opened the door to renewed debate on the controversial concept.
The District would gain much more money than it loses from its own residents who are taxed at jobs in Maryland, Virginia or elsewhere, according to the D.C. Office of the Chief Financial Officer. Although the city does not know what form any commuter tax might take, estimates show the District could bring in a net $800 million — a sizable chunk of change considering the city's gross operating budget for the coming fiscal year is $9.4 billion.
"It's the one thing that holds the District back — the inability to tax the income of [out-of-state commuters] like every other jurisdiction does," said Mr. Evans, who plans to run for mayor in 2014 or sooner if a federal probe into Mayor Vincent C. Gray's 2010 campaign forces the sitting leader out of office.
A commuter tax allows the District to tax people who work in the city, although the out-of-state residents "would then file home state income taxes and take credit for D.C. taxes paid," CFO spokesman David Umansky said.
"The state treasuries of Maryland and Virginia" he added, "will lose both withholding remittances from D.C. employers and payments from individuals filing returns and taking credits."
Several cities already impose income tax on nonresidents, including Philadelphia, Cincinnati, Louisville, Ky., and Detroit.
The concept of a D.C. commuter tax is not new; city leaders have long coveted the idea of taxing income earned by people who don't live within its borders. Yet unlike the District, Maryland and Virginia have senators and congressmen with the power to shoot down proposals on Capitol Hill.
Former D.C. Council member Harry Thomas Jr. proposed a commuter tax in 2010. It was rolled into what was considered for the fiscal 2011 budget, but ultimately was not approved.
In April 2011, Thomas and Mr. Evans introduced a resolution to tax professional athletes who earn money playing in the District, but do not live there. The bill passed the council, and Delegate Eleanor Holmes Norton, the city's nonvoting member of the House, introduced the bill to Congress a month later. The bill has been sitting in a House subcommittee since June 2011. It has no co-sponsors and is likely to die when Congress adjourns at the end of the year.
House Minority Whip Steny H. Hoyer, Maryland Democrat, said a D.C. commuter tax "unfairly penalizes people who work in the District, where the majority of federal government buildings are located, but live in the more affordable Maryland and Virginia suburbs."
Mrs. Norton, a Democrat, said the commuter tax dispute is "a war I don't think can be won."
But Mr. Issa, California Republican and chairman of the House Committee on Oversight and Government Reform, has positioned himself as a powerful friend of city leaders. Last year, he said the District should be able to set its own fiscal year and spend its local funds without waiting for the federal appropriations process.
Earlier this month, he said the District should take the lead in tweaks to the 1910 law that restricts the height of city buildings, before throwing a quick ounce of hope to D.C. Chief Financial Officer Natwar M. Gandhi by mentioning — although in passing and not by name — the commuter tax.
"He can rally a lot of support around the idea," Mr. Evans said. "It's up to Issa. I don't know the man, but I respect the ideas he throws out there."
But there are plenty of stumbling blocks along the way. A federal appeals court ruled in 2005 that the District must obtain permission from Congress to impose a commuter tax. If federal lawmakers gave their blessing, the city would have to direct employers to withhold the tax through council legislation or executive rulemaking, according to a council aide.
Mr. Evans said any revenue from a commuter tax should not be dumped into the city's general fund. Rather, he said, the funds should be earmarked for infrastructure improvements or other pressing needs.
To help things along, Mr. Evans said the federal government probably should subsidize the tax for 10 years or for some other set period. Ultimately, the city will have to convince its neighbors to see eye-to-eye with its plight.
"The District of Columbia subsidizes some of the richest counties in America — Montgomery and Fairfax," Mr. Evans said. "They just have to come into the real world someday."
• Emily Hatton contributed to this report.
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