- The Washington Times - Wednesday, May 28, 2014

The D.C. Council on Wednesday gave its blessing to the first significant package of tax cuts in the District since 1999, providing relief to residents of a city whose coffers have swelled in recent years along with its cost of living.

The tax package, which will run the city $165 million annually, will be phased in over five years and includes the creation of a 6.5 percent tax rate for middle-income residents who make between $40,000 and $60,000 annually and an increase of the threshold for the city’s estate tax from $1 million to $5.25 million.

The plan, which D.C. Council Chairman Phil Mendelson announced Tuesday night, was approved in an initial vote on the same day lawmakers passed the city’s $10.7 billion fiscal 2015 budget.

SEE ALSO: Mayor Gray issues harsh rebuke over D.C. Council’s modifications to his budget

“Very rich people were paying a lower effective rate on their income than middle-income people were, and that’s not right,” Mr. Mendelson said. “There is an affordability issue in this city. Our ability to adjust and reduce the burden, which we reduce on virtually every taxpayer in this budget, is important.”

The plan passed over the strenuous objections of Mayor Vincent C. Gray, who complained that the plan to fund it required gutting the city’s developing streetcar program. Legislators will have to vote on the package a second time June 11.

“The mayor is deeply disappointed by the council’s action today, which kills the streetcar system,” Gray spokesman Pedro Ribeiro said. “We’re going to continue to try to educate the members about what they have done — and the public.”

The changes lower the tax rate for residents making less than $1 million. People earning $25,000 to $50,000 would save an average of $352 on their tax bills, those making $50,000 to $75,000 would save an average of $436, and those who earn $75,000 to $100,000 would save an average of $602.

In addition to creating a new income tax bracket, the plan also expands the single earned income tax credit and realigns standard deductions and personal exemptions to conform to federal levels.

To stimulate continued business growth, the plan also includes a reduction of the incorporated and unincorporated business franchise tax to 8.25 percent — the same rate as Maryland’s and closer to Virginia’s 6 percent rate.

Although only two council members raised objections during Wednesday’s hearing, others said they might seek further explanation of some initiatives — specifically a provision that broadens the sales tax base to include sectors such as gyms and health clubs.

“I’ve never supported a tax increase to health clubs. I want to see, and will ask, the chairman what could really be generated from that proposal and see if there is any other way to get that money,” said council member Muriel Bowser, Ward 4 Democrat and candidate for mayor.

Health clubs are among six types of businesses that would have sales taxes imposed on their services as a result of the package. Others include storage rental facilities, car washes and bowling alleys.

The components of the proposal came from the D.C. Tax Revision Commission, a panel led by former Mayor Anthony A. Williams, which was charged with assessing the fairness of the city’s tax structure while broadening its base and keeping it competitive with surrounding jurisdictions.

The commission also included recommendations for the city to recoup the tax cut losses, most notably by adopting a per-employee business tax, but neither the council nor the mayor embraced the idea.

Mr. Gray’s budget proposal held off on adopting the bulk of the committee’s recommendations, eschewing changes to the estate tax entirely and listing other cuts as items only to be funded if there was a budget surplus.

Story Continues →