Local Nonprofits Tell DC Leaders Not to Govern With Hands Tied

February 1, 2017

Shortly after I published my latest blast against the District of Columbia’s triggered tax law, the DC Fiscal Policy Institute and about 50 other local organizations sent a letter to the Mayor and Council urging them to take the same steps I characterized as first priority defenses against prospective federal spending cuts.

They also recommend changing another law, which requires the District to put any funds not spent by the end of the fiscal year into savings accounts. That makes them unavailable for a wide range of critical needs, including those that may lose federal funds.

The sign-on list is still open. If you work for an organization that would like to join, you’ll find the instructions at the end of the letter. A fairly quick and easy way to support progress in these times of extraordinary uncertainties.


Perilous Time for DC to Trigger More Tax Giveaways

January 30, 2017

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.


Not Enough Money for Low-Income DC Residents, But Tax Cut for Wealthy Unchanged

May 26, 2016

As you local readers probably know, the DC Council passed a budget for the upcoming fiscal year last week. Some changes in what the Mayor had proposed for programs that serve low-income residents.

The DC Fiscal Policy Institute’s overview of the budget confirms what I’d expected. Mostly, a bit more here, a bit more there. No more for some critical priorities. And less for at least one. (The one large, new investment it cites — for new family shelters — isn’t part of the budget proper.)

I suppose we’ll be told that the Council did its best with what it had to work with. I don’t know because I don’t know nearly enough about the funding needs and prospective impacts of every program and service the budget covers.

But I do know that the Council could have had more revenues to work with. It had only to postpone — or better yet, repeal — the tax cuts prior legislation has made automatic whenever revenues rise above the estimate used for the latest budget.

The triggers have already reduced otherwise available revenues by many millions of dollars — dollars the Council could have used to shore up under-funded programs.

So much water under the bridge. And as the Chairman, who likes those triggers says, the revenues lost from cuts not yet triggered couldn’t have been used for the new budget. But the Council could have had them to spend as early as next fiscal year — and thereafter.

All tax cuts are not created equal, of course. Some on the pending list will benefit residents who’ve got enough income to owe taxes, but not a lot.

The second cut on that list, however, is a higher threshold for the estate tax. The most recent revenue forecast indicates that it will lock in soon, DCFPI’s latest account of the trigger impacts says.

So henceforth, no assets a deceased resident leaves to heirs will be taxable until they’re worth $2 million — twice the current minimum.

As things stand now, this will be the first of two estate tax cuts. The second — and considerably larger — will raise the threshold to the same minimum as applies to the federal estate tax, currently $5.45 million.

Why the District should embrace a regressive measure gained in a crisis by Congressional Republicans who could never be elected here baffles me.

True, the Tax Revision Commission recommended parity with the federal threshold, including the ongoing upward adjustments for inflation. But the Council could have taken a pass, just as it has on the revenue-raisers in the Commission’s package.

The District will forfeit $18.8 million next fiscal year alone, according to DCFPI’s estimate. And for what?

Not so that more money can pass to charities tax free. Bequests to them are already exempt. Not so that surviving spouses will have more to live on, since what passes directly to them will also still reduce the value of what counts toward the threshold.

Not even necessarily what other heirs wind up with, since a will-maker can give them as much as $14,000* each or the equivalent every year while still alive — again reducing the value of what’s potentially taxable afterwards.

The estate tax giveaway won’t just make larger investments in programs that reduce hardships for poor and near-poor residents unnecessarily difficult. It will increase income inequality in the District by giving the rich more, as well as denying the poor supports and services that help close the income gap from the bottom.

And the gap will grow from one generation to the next in part because of the way the taxable value of assets is determined. Essentially, it’s set at their value when the person bequeathing them dies.

So heirs pay capital gains taxes when they sell the assets for more, but no tax on how much the assets’ value increased between the time they were purchased and the time inherited.

And, of course, heirs don’t have to sell them. They can pass them along to their heirs, compounding the revenue loss — and wealth at the top of the income scale.

The estate tax then is a way of partly recouping the loss and, at the same time, averting a rollback to the inordinate wealth concentration of the Robber Baron days.

The higher the threshold, the less an already-shaky control on income inequality can do. And the gap between the richest and poorest District households is already very large — larger, indeed, than the DCFPI analysis I’m linking to shows because it doesn’t drill down to the top 1%.

Their incomes averaged well over $1.9 million in 2012, the latest year I’ve found figures for. This, recall, is income for a single year, not also what could readily be converted to income.

Now, no one — not even Bernie Sanders — is talking about taking so much from the rich and giving it to the rest that incomes would be equal. Nor is anyone talking about taking all the wealth the rich have accumulated when they die.

The major focus — and DCFPI’s recommendations reflect it — is reducing the gap by lifting incomes at the bottom and making those incomes more sufficient for basic needs, e.g., by ramping up investments in housing they can afford.

Not all income-lifting measures would require the District to spend more public funds. But some surely will, including workforce development and (you knew I was going to go here) reforms in the rigid Temporary Assistance for Needy Families time limit policy.

Leaving the estate tax threshold where it is won’t give the District as much more tax revenue as it needs. But the giveaway isn’t chump change either.

And it’s got nothing going for it, except a hugely successful and duplicitous PR campaign. Surely Councilmembers know better. And I’d like to think their donors not only know better, but want better for our community.

* This is the current threshold for the federal gift tax, which will rise over time to keep pace with inflation. The District has no gift tax.


Putting Brakes on Runaway DC Tax Breaks

December 10, 2015

The District of Columbia has pretty well recovered from the Great Recession. Not all residents have, of course. And some had no recession to recover from because they were jobless, homeless and the like before it began.

But a fair number do seem to have higher earnings now since tax revenues have increased and are expected to increase further during the next several years.

So barring some unforeseen disaster — or dreadful policy choices — we’re unlikely to see severe spending cuts driven by the District’s need to keep its budget balanced. That doesn’t mean the District has the wherewithal to meet all critical needs, however. Not even close.

For one thing, as I’ve remarked before, the District, like other state and local governments, will have to spend more merely to make up for shrinking federal support.

For another, the District has needs beyond what even less stingy federal funding would cover — affordable housing, new shelters for homeless singles, as well as families, better public education, especially for low-income and/or minority students …. Well, you can fill in the blank as well as I.

So the DC Council should do two things during the upcoming budget season — both under the heading of do no (further) harm.

Stop the Triggered Tax Cuts

The Budget Support Act the Council passed in 2014 includes a provision that makes certain tax cuts recommended by the Tax Revision Commission automatic when projected revenues are sufficiently greater than they were when the budget became final to keep it balanced, despite the losses.*

Basically, the Chairman chose the tax cuts he liked best. Then he ranked those that would have immediately thrown the budget out of whack so that the most preferred would kick in first, then the next and so on.

The priority order itself reflects some dubious preferences — a cut in the tax rate for personal incomes over $350,000, for example, and two increases in the minimum value estates must have to owe any District tax.

But the triggers are to my mind — and not mine only — irresponsible in principle because they deny Councilmembers the opportunity to weigh revenue losses against unmet spending needs on a case-by-case basis.

We’d expect triggers from Red states with governors and legislatures bound and determined to slash spending — and in at least some cases, convinced that tax cuts will stimulate so much growth as to pay for themselves.

And indeed, most, though not all states that have adopted triggers are Red. No economic booms. Google Kansas or Oklahoma budget deficit for specific sorry results.

Fortunately, the District isn’t controlled by officials who take their cues from the American Legislative Exchange Council, which promotes triggers as a way to starve governments of funds needed for services, as well as other laws its Koch brother and other corporate backers favor.

So it seems to me our elected representatives shouldn’t persist in an approach that will privilege tax cuts over services that could do more good for more people.

Stop Administrations From Needlessly Giving Money Away

Four years ago, the Council passed a sensible law to exert some discipline into the process of awarding tax breaks to specific entities or projects. It postponed any Council hearing until the Chief Financial Officer provided an assessment.

Well, the Bowser administration recently moved to give a $60 million property tax cut to the Advisory Board — a large consulting firm that had indicated it might move its headquarters to Virginia. Some commitments on the Board’s part, mostly jobs for District residents.

But the Board would probably hire at least as many residents anyway, the CFO opined. And the annual $6 million more it would have to pay without the cut would “not affect the company’s ability to maintain operations or continue its growth.”

In any event, the CFO said, “research indicates that tax incentives are generally not a critical factor in corporate locational decisions.” The Council rubber-stamped the tax break anyway.

This is hardly the first such tax giveaway. The District has a long history of them — more than I could possibly cite here, even if I could compile the list.

Like me, however, some of you may remember former Mayor Gray’s $32.5 million tax break package for LivingSocial — a bad bet, as it proved, on the company’s growth and new hires.

In this case, the CFO took a pass on whether enticing LivingSocial to locate its headquarters here would have economic benefits. But he again concluded that the company would be able to pay its expenses and sustain its operations without the tax breaks.

And he noted presciently that it had yet to turn a profit, casting doubts even then on benefits the District and its residents would reap. Unanimous approval from Councilmembers anyway.

So clearly, the law isn’t working as intended. And every time the Council approves one of these corporate tax breaks, it encourages other enterprises to engage in the same sort of extortion.

It could take an alternative approach. It could fold property tax reductions (technically, abatements) and other locally-funded tax incentives into the budget for economic development.

Not my idea. But to me, it makes all the sense in the world because tax breaks are a form of spending — hence the term tax expenditures, which is how budget wonks refer to them.

Putting a line item for corporate tax breaks into the budget would compel the administration and Council to weigh the total against other spending options — and force choices later, since the budget would cap the total dollar value of the giveaways.

Neither of these policy shifts would ensure sufficient funding for programs and services that benefit low-income residents — because they’re targeted or because they improve the economy and quality of life in our community.

But the shifts would tend to foster decisions that weigh direct spending needs against spending through the tax code.

* The 2015 Budget Control Act pushed the triggers back to an earlier revenue forecast. So some will kick in even before the Council has a proposed budget to work on.

UPDATE: Very shortly after I published this, the DC Fiscal Policy Institute published a post warning that the District could have to cut spending for next year unless policymakers can find alternative ways to fund “one-time” items in the current budget.