The D.C. Council voted Wednesday to roll back the city’s sales tax to the lowest rate in the region and signaled a willingness to negotiate other taxes as members considered the best uses for a budget surplus projected to total $600 million in the next five years.
The sales tax will drop in October from 6 percent to 5.75 percent — where it stood in 2009 when lawmakers, facing budget shortfalls, raised the levy to its current rate.
“We promised the taxpayers that when we raised the taxes that we’d lower it back down again,” council member Jack Evans, Ward 2 Democrat, said. “This is the perfect time to lower those taxes.”
The reduction was included as part of an amendment to the fiscal 2014 budget and would be offset through the $92.3 million in extra revenue expected to be collected next fiscal year.
An amendment introduced by council member Tommy Wells, Ward 6 Democrat, that would have swapped the sales tax reduction for increased deductions on residents’ income taxes was struck down in an 8-5 vote. Mr. Wells and Mr. Evans are running for mayor next year.
Mr. Wells reasoned that the income tax deductions would do more to put cash back in residents’ pockets — giving the example that a person earning $40,000 would save $144 in income tax while a person who spends $10,000 would only save $25 in sales tax.
While not opposing the notion altogether, council Chairman Phil Mendelson recommended suggestions to alter the District’s income tax be held off until an independent commission charged with reviewing the city’s tax code completes its work.
The Tax Revision Commission, headed by former Mayor Anthony A. Williams, is meeting on a regular basis and expected to begin drafting recommendations in the fall.
“I do support our looking at this,” Mr. Mendelson said.
The council also set aside $18 million from next year’s projected surplus to implement any tax cuts suggested by the commission.
Wednesday’s action also ensures the District will have a lower sales tax than surrounding jurisdictions. The Virginia General Assembly voted this year to raise the state’s sales tax to fund transportation. The tax will increase from 5 percent to 5.3 percent statewide but will jump to 6 percent in Northern Virginia. Maryland legislators raised that state’s sales tax from 5 percent to 6 percent in 2007.
“Wouldn’t it be nice — I think it’s largely symbolic but nice — to say, ‘Hey, we actually can have a lower tax rate on something than our surrounding jurisdictions?’ ” Mr. Mendelson said.
The D.C. Chamber of Commerce, which has supported lowering taxes in general, applauded the move.
“This is a good start, and will save District consumers nearly $16 million over the next year,” said Barbara B. Lang, chamber president and CEO. Ms. Lang called on lawmakers to address other specialized tax increases as well.
Mayor Vincent C. Gray, while not directly addressing the sales tax reduction, voiced approval for the council’s spending plan, which allotted $50 million of the $92.3 million surplus.
“The council has charted a responsible course consistent with my original budget that will help move the District forward,” Mr. Gray said.
Other initiatives the council funded with the surplus money include $11 million to increase early childhood education programs by 200 slots, $3.9 million to fully subsidize public school students’ rides to school on Metrobus, and $4.5 million for arts grants.