Washington, D.C. Is Planning an Unnecessary and Harmful Wealth Tax | Citizens Against Government Waste

Washington, D.C. Is Planning an Unnecessary and Harmful Wealth Tax

The WasteWatcher

Citizens Against Government Waste President Tom Schatz recently wrote an op-ed for The Washington Times on why the District of Columbia’s wealth tax is unnecessary and harmful to the economy.  He concluded that these tax increases will cause revenue to fall as the “wealthy” will move out of the city.  This will force the government to raise taxes on a much larger percentage of the population, the opposite of what the city council is supposedly trying to achieve.  

Despite the coronavirus pandemic causing fiscal shortfalls in many cities and states, D.C. ended its fiscal year (FY) 2020 on September 30, 2020, with a surplus of $526 million, which is more than the $500 million surplus in FY 2019.  Unfortunately, this did not stop the D.C. City Council from voting for a “wealth tax” that would increase income taxes on those who earn $250,000 or more annually in order to fund childhood education with a focus to lower crime rates, housing programs to address homelessness, and monthly payments for low-income families. 

When most people think of a “wealth tax” they think of the top 1 percent or perhaps the top 5 percent, but not the top 15.1 percent, or 49,615 households across D.C. with income of $250,000 or more.  Whether it is the top 1 percent or 15.1 percent, raising taxes on any D.C. resident is completely unnecessary and will harm the city’s economy, population, and reputation.

D.C. Mayor Muriel Bowser (D) said, “With a once-in-a-lifetime infusion of federal funding, we believe now more than ever that the government should live within its means and not burden residents or employer.  The “once-in-a-lifetime” funding referred to by Mayor Bowser includes $1.9 billion of COVID-19 relief from the federal in the “form of stimulus checks, additional unemployment benefits, loans to small businesses, and more.” 

Councilmember Brooke Pinto (Ward 2) was one of five who voted against the wealth tax increase.  Pinto wrote in her July 20 newsletter that she did not agree that “passing an ad hoc tax is the right way to create tax policy.  The Council voted to establish a Tax Revision Commission.  This entity is entirely devoted to evaluating our tax code, understanding where loopholes and weaknesses exist, and developing evidence-based recommendations to make our tax code equitable.”  She stated that the commission is working ensure that the tax code best serves all D.C. residents and considers the District’s long-term success within our region.”  She also noted that the vote was held less than 24 hours after the tax increase was proposed. 

However, Councilmember Robert White (At-Large), who supports the wealth tax increase, claimed that the mayor’s “law-and-order’ strategy has failed, and that  “We have to acknowledge the direct link between education, particularly early childhood education, and crime.”  He suggests there should be an investment “in Birth to Three,” but logic dictates that crimes currently being committed cannot be reduced by waiting for “Birth to Three” to grow up.   If the plan is for some of that money to be used to prevent crime, the problem needs to be solved immediately. 

As the mayor suggested, this can only be done by paying overtime for law enforcement, or rehiring some of the 200 law enforcement officers who have left the department over the past year.   But the city council unanimously rejected her proposed $11 million increase in funding for police, which would have allowed the hiring back of 135 officers.  They cut the rehiring amount to $5 million and allocated the remaining $6 million for “public health-based programs to reduce gun violence.”

A January 1, 2021 WTOP report cited D.C. police data that showed “198 homicides in 2020, up from 166 homicides in 2019 — a 19% jump.  That makes 2020 the deadliest year for D.C. since 2004, which had 248 homicides, and slightly above 2005, which had 196 homicides.”  There was also a 50 percent increase in theft between 2019 and 2020.  The city has made national news for the wrong reasons with several violent crimes in recent weeks, including a shooting outside of Nationals Park and another shooting that killed a 6-year-old.  Between February and July 2020, D.C. had a net loss of 15,520 residents, while only 5,896 residents left between February and July 2019.  

People who left the city stated that they are leaving D.C. due in large part to rising crime rates, and others have threatenedto move.  The D.C. wealth tax increase, along with the increase in crime, will likely cause an increasing number of D.C. residents to flee to places with lower tax rates like Maryland or Virginia, where the top marginal rate is 5.75 percent, 87 percent lower than the new top D.C. rate.  The lower rates in areas like Arlington, Virginia, and Bethesda, Maryland, both of which border D.C., have seen tremendous growth in startups, businesses, and technology companies.  This includes the second headquarters for Amazon in Arlington, which the company says will create 25,000 new jobs and invest more than $2.5 billion in the region. 

Both policy analysts on the right and left agree that the city has enough money and will continue to have enough money, and politicians should take note of their analyses.  The Tax Foundation states that tax revenue growth in D.C. is expected to be around 3.5 percent each year for another four years, and according to the D.C. Policy Center, the city received $2.8 billion in funding from the American Rescue Plan Act (ARPA) and argued that D.C. should “hold off on tax increases on its residents and businesses in this budget cycle.”   

Imposing a wealth tax in D.C. will likely lead to a mass exodus from the city and emulate what has happened in California and New York.  The wealth tax in New York City begins at $1 million rather than $250,000, and the highest rate in D.C. is greater than their highest rate.  If the D.C. City Council wants to fund or create new programs that members believe are critical and not duplicative of existing programs, they should use some of the $1.2 billion surplus from the last two years, or cut waste, fraud, abuse, and mismanagement instead of raising taxes. 

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