Think global, act local: DC Taxation edition

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The media is full of articles today about yesterday's DC City Council decision to raise the top rate on the city's income tax, such as this one from the Washington Post, "D.C. Council agrees to raise taxes on city’s wealthiest residents."

From the article:

In the 7 to 6 vote, the council agreed to increase the income tax rate from 8.5 percent to 8.95 percent on about 6,000 District residents who earn more than $350,000 a year. The tax increase puts the District at the center of the national debate about whether the wealthy should share a greater tax burden. Mayor Vincent C. Gray is expected to sign the tax increase into law.

DC is unusual in that 100% of the income tax--assessed only on residents--remains within the city.

(Some states, such as Maryland, share the "state" income taxes with the localities. And some cities have an income tax, designed to reap revenues from non-residents.)

The Post is up in arms about the tax increase, according to this editorial, "D.C.’s irresponsible income tax hike," which states that "City residents shouldn’t be penalized because their government lacks fiscal discipline."

I find the issue interesting for a couple reasons:

• DC Fiscal Policy Institute has been making the argument for a couple years that rather than cut programs that disproportionately serve the poor, why not add an additional element of progressivity to the income tax.

• we are having the same argument at the national level (e.g., "Obama’s debt-reduction plan: $3 trillion in savings, half from new tax revenue," "The Plum Line: Yup, moderates and independents support taxing the rich and "Old debate on taxes in new landscape" from the Post)

• nationally, the Republicans are making this out to be class warfare, even though the impact is comparatively minimal (I don't make tons of money...);

• and arguments about progressivity in tax rates are partly about how those who benefit from a functioning government and country (and let me tell you, the rich do benefit) and can afford to pay more ought to;

• at the national level, the New York Times has editorialized many times in favor of tax increases on the rich, such as in "Fairness for all," while the Post is more focused on debt reduction, "Not big enough," mentioning the tax increase proposal in passing but not saying much about it.

Interestingly, with regard to the DC issue, the proponents of the tax increase could have argued better for it, making the case for progressivity in the tax rate and comparing DC's tax burden to the surrounding jurisdictions (generally we pay less in taxes than Marylanders, and more than Virginian's, even though housing values tend to be higher in DC).

But the proponents didn't really make this kind of argument. And the Post should have considered these issues in their editorial also.

As President Obama said, from this article "Obama defends new taxes: ‘This is not class warfare, it’s math’" in The Hill:

The president criticized Republicans for insisting no taxes can be raised, and said it would not be possible to improve the nation’s fiscal standing without new taxes on the wealthy.

He rejected criticism that his proposals amount to class warfare, saying that after a decade of unchecked spending, every American has to pitch in and pay their fair share. Otherwise, Obama said, the U.S. will try to cut programs for the middle-class and the poor while protecting tax cuts for the wealthy.

“This is not class warfare,” Obama said. “It's math.”

At the same time, the City Government should make a commitment to better administration and quality of municipal services. That's what the Post is carping about and I tend to agree with them.

DC ought to be a world class city, truly, and in too many ways, we are mediocre, merely defining "world class" down to whatever level we manage to function at for the various services and agencies.

That's something that the DCFPI never seems to bring up...