The District of Columbia (D.C.) ended the fiscal year (FY) 2020 on September 30, 2020, with a surplus of $522 million, which followed a $500 million surplus in FY 2019. However, that did not prevent the D.C. Council from voting for a “wealth tax” that would increase income taxes on those who earn $250,000 or more annually to fund childhood education with a focus to lower crime rates, housing programs to address homelessness, and monthly payments for low-income families, raising $171 million through 2025.
Most people think a “wealth tax” should hit the top 1 percent or perhaps the top 5 percent, and proponents claim the new tax will only raise taxes on the top 4 percent. But that is a false claim, as 15.1 percent, or 49,615 households across D.C., have incomes of $250,000 or more. Raising taxes on any D.C. resident at any income level is unnecessary. It will harm the city’s economy, population, and reputation.
The council rejected Mayor Muriel Bowser’s (D) balanced budget plan that reduced taxes and fees. She said that the large infusion of federal funds, which includes $3.3 billion alone from the American Rescue Plan, means the government should not “burden residents or employers.” She suggested that the council “reconsider raising taxes before their final vote.” D.C. Councilmember Brooke Pinto (Ward 2), who opposed the tax increase, said that changes in the tax code should be considered by the Tax Revision Commission and an “ad hoc tax” passed less than 24 hours after it was proposed is not the proper way to make the code more equitable.
But Councilmember Robert White (At-Large), a proponent of the wealth tax and using the funds raised to fight crime, claimed that the mayor’s “law-and-order” strategy has failed, and the “direct link between education, particularly early childhood education, and crime” means there should be an urgent investment “in Birth to Three.” Crimes being committed right now cannot be reduced by waiting for “Birth to Three” to grow up.
Metropolitan Police Department data show homicides increased by 19 percent between 2019 and 2020, from 166 to 198, the highest since 2004, and theft increased by 50 percent. The shooting outside of Nationals Park and another shooting that killed a 6-year-old made national news over the past few weeks, and the lead story on FoxNews.com at 2:00 p.m. on August 2, 2021, was “Washington, DC, murders surpass coronavirus deaths in July by nearly 3-to-1 ratio,” when there were 21 homicides and eight coronavirus deaths. Homicides reached 100 by July 10, the earliest since 2003, while the average date over the past decade has been October 25.
Between February and July 2020, D.C. had a net loss of 15,520 residents, while only 5,896 people left between February and July 2019. People left the city due to rising crime rates, and many others are considering whether to stay. In 2020, D.C. dropped from 19 to 30 on the US News & World Report’s “Best Places to Live” list and is currently 28. Increasing taxes on 15 percent of the city’s residents will likely drop it down again.
Currently, earners in D.C. who make between $60,000 and $350,000 annually are taxed at 8.5 percent, those who make between $350,000 and $1 million are taxed at 8.75 percent, and those who make more than $1 million are taxed at 8.95 percent. The City Council’s plan raises the tax rate by between 2.3 percent ($250,000 to $350,000) and 2.6 percent ($350,000 to $500,000) to 9.25 percent for a single earner who annually makes between $250,000 and $500,000. Taxes on those earning between $500,000 and $1 million will increase by 11.4 percent to 9.75 percent, and taxes on those earning more than $1 million would increase by a shocking 20 percent to 10.75 percent, higher than the comparable rate in New York. The Empire State’s new wealth tax increases the rate from 8.82 percent to 9.65 percent for those making more than $1 million, those making between $5 million and $25 million would pay 10.3 percent, and the top rate of 10.9 percent would apply to those making more than $25 million.
The tax increase, along with rising crime, will likely cause an increasing number of D.C. residents to flee to lower-tax states like Maryland or Virginia, where the top marginal rate is 5.75 percent, 87 percent lower than the new top D.C. rate.
Since the top 15 percent pay more than half of the city’s individual income taxes, driving them out will reduce revenue and force the city to raise taxes on a much larger percentage of the population, the opposite of what the city council is supposedly trying to achieve. If the programs that the council wants to fund or create are so critical, rather than increasing taxes, the council should use some of the $1.2 billion surplus from the last two years, or cut waste, fraud, abuse, and mismanagement from the budget.
• Tom Schatz is president of Citizens Against Government Waste and has been a D.C. resident since 1978.