Perilous Time for DC to Trigger More Tax Giveaways

We’re into the budget season here in the District of Columbia. The Bowser administration is busy preparing its proposal, aiming to send it to the Council in early April. That will trigger hearings, then votes — first by the committees responsible for the major budget areas and then by the Council as a whole.

Budgets are always somewhat of a crap shoot because officials don’t know how exactly how much the District will collect in taxes and fees.

More importantly, they don’t how much the District will receive from the federal government and for what. But they have to factor some figure in for roughly a quarter of what the District will have to spend.

That figure is much more iffy this year for several related reasons. First, we’ve got a new President — and one that’s set on making major changes that would have both direct and indirect effects on the District’s budget.

Second, it’s doubtful anyone, except maybe insiders will know what’s in his final proposed budget before the Mayor finishes hers. The problem here is that District agencies base their budget input in part on the prospective budgets of the agencies from which they regularly receive grants.

The estimates are always just ballparks, of course. Congress can — and often does — change proposed spending levels. Or makes no changes in what it’s currently approved — something it often does, though rarely for all federal budget areas and the entire fiscal year.

But uncertainty this year will be extraordinarily high. Would be even without Trump’s threat to withhold grants from cities that don’t participate in the federal government’s immigrant deportation efforts.

The Hill reports that the administration aims to send “an initial budget proposal” to Congress long about the second week in March, but that it’s likely to run into big-time flak from some Congressional Republicans, especially in the Senate.

Can’t count on easy sailing through the House either, especially if it reflects, as rumored, either or both the Heritage Foundation’s radical downsizing blueprint and Trump’s promise to invest $1 trillion in infrastructure over the next 10 years.

Well, Congress has to do something by the end of April to prevent a government shutdown. But what that bill will look like is anybody’s guess.

What’s lots more certain are cuts to a range of non-defense programs — not only those that depend on annual spending decisions, but like as not Medicaid. But nobody can know for certain which, how much and when they’ll set in.

And nobody knows how the economy will fare. Dire warnings of a recession — in part, just because it’s time for one, though some economists also cite policies Trump has promised, e.g., new trade barriers.

As always, a recession will drive down local tax revenues, while increasing needs (and eligibility) for safety net programs that the District funds in whole or in part.

One would think that District policymakers would want to make extra sure that the ongoing revenue stream, plus money in savings accounts will cover the community’s critical needs — or at the very least, minimize the need for cuts.

Yet District law requires specified tax cuts whenever projected revenues exceed those projected for the prior fiscal year — this no matter what a longer-term forecast might indicate or what seems likely on Capitol Hill.

As a practical matter, this means that the District could give away millions of dollars — and not just for a single year, but for good, unless the law is changed.

As I’ve said before, Councilmembers didn’t carefully consider the automatically triggered tax cuts before agreeing to approve them.

The Chairman tucked them into the Fiscal Year 2015 Budget Support Act, the package of legislation needed to make existing laws consistent with the budget proper, shortly before the first required vote.

How Councilmembers would have voted after public hearings, written testimony and committee discussions of the triggers is an open question. But that was then, and this now — a very different now from several years ago.

Different not only in ominous prospects for federal funding, but in pressing needs that call for more local funds. They’re mostly not brand new, but more urgent, for various reasons.

They include a remedy for the also hastily-passed rigid time limit on participation in the Temporary Assistance for Needy Families program.

Also high on the list are increased investments in affordable housing for the lowest-income residents, both those who are homeless now and those at high risk because they’re paying at least half their income for rent.

The DC Fiscal Policy Institute has cited some others, e.g., more for public schools due to increased enrollment and rising costs, improvements in our aged, hazardous Metro system.

DCFPI and other local advocacy organizations earlier recommended a pause in the triggered tax cuts. It’s surely high time the Mayor and Council do that and set the revenues saved aside to help offset federal spending cuts the upcoming budget didn’t account for.

Didn’t, as I said, because it couldn’t. And sadly, neither the District nor any state can fully offset what they could lose in federal funds.

The DC auditor reports that just the “rollback” of the Medicaid expansion piece of the Affordable Care Act, i.e., the enhanced federal match for newly-eligible beneficiaries, would cost the District $563 million next fiscal year alone.

Just one of many signs that the District needs every penny it now collects in fees and taxes.

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One Response to Perilous Time for DC to Trigger More Tax Giveaways

  1. Kathryn, you are right to point to the huge challenges we face regards to the budget because of Trump’s selection and the automatic tax triggers as a result of the 2014 legislation which largely implemented the Tax Revision Commission’s recommendations. Recall that as a member of this Commission, Ed Lazere (DCFPI) voted for them with the argument that most of the triggers were progressive and modestly improved the progressivity of DC tax structure. Ed gave good advice then, fight against the regressive triggers and support the progressive ones. The pending trigger for this year is a modest $9.3 million transfer to working class residents by virtue of an increase in the standard deduction and personal exemption in the DC income tax. Shouldn’t we support this modest step to confront income insecurity of these residents, surely part of the safety net you speak of?

    Why not emphasize the really important demands of the Fair Budget Coalition in its Protect DC’s Budget (http://fairbudget.org/blog.html), namely:
    1) Increase corporate tax rates for multi-national and multi-state corporations operating in the District;
    2) Withdraw all subsidies and abatements from developers and corporations doing business in the District who are not complying with local hiring and affordable housing requirements or wage and other labor law;
    3) Eliminate District subsidies for housing providers and property owners who operate housing units with substandard or unlawful living conditions;
    4) Increase taxes on developers building luxury and high-end condominiums;
    5) Reconsider subsidized development projects that do not meet basic resident needs like the streetcar, soccer stadium, and Wizard’s practice facility;
    6) Raise taxes on wealthy individuals and families, particularly those whose federal income tax rates may be lowered in the next federal budget (more on this below).

    Note that even with the full implementation of the 2014 legislation DC millionaires will continue to pay a lower overall DC tax rate than all but the poorest residents, and the tax structure will still be regressive above $50K family income.

    But we have a big opportunity to do better!

    Because a Trump/Ryan federal income tax cut giveaway is very likely for wealthy residents, the DC Council can implement a DC income tax hike for the same residents, leaving them paying the same overall taxes, but generating several hundred million dollars/year more revenue for DC’s budget! (MD and VA could do likewise). The DC Council should revise the 2014 legislation (B20-750) to include further tax relief for working class residents coupled with hikes in DC income tax rates for the wealthy and increase taxation of the big corporate sector.

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