Pre-mayoral candidacy tax initiatives: Jack Evans edition

Image from study for Sarasota County, Florida on the tax yield per acre by different types of development.  In DC, income taxes on residents generate additional revenue for the city compared to comparable jurisdictions.  

The City Paper reports, in "Do We Need a Lower Property Tax Limit?," that Councilman Jack Evans of Ward 2 proposes new lower limitations on the increase in taxable value of property on a year-to-year basis.

 He says this is justifiable for a number of reasons including that DC's sales, income, residential property, and commercial property taxes are higher than the surrounding jurisdictions.

I think besides "helping" his constituents, as most of the value of such a break would go to Ward 2 (and Ward 3) residents, I wonder if this is a sweetener in advance of the electioneering process for the 2014 Mayoral Election cycle.

With regard to the arguments--except for the fact that there is an element of unfairness about property taxes anyway, because the value is calculated on the current-but unrealized--value of property, the reality is that for the most part, the tax burden of DC's residents is significantly less compared to  suburban jurisdictions.  (The DC Office of the Chief Financial Officer used to do a comparison report on this, but doesn't seem to have done so for a few years.  Note that the DC Fiscal Policy Institute did a similar report in 2011 comparable to the entry below, although I did not consult that document to prepare this entry.)

Commercial property taxes.  First, commercial property taxes are irrelevant to the issue of residential property taxes.  Yes, DC commercial property taxes are higher than the surrounding jurisdictions.  It's because mostly, the buildings are worth a lot more when they are in DC.  But it's still irrelevant to residential property taxes.

Retail sales taxes.  DC's retail sales tax rate of 6% is marginally more than Virginia's and the same as Maryland's.  Oh, and Virginia charges a 2.5% food sales tax on groceries, neither DC nor Maryland charge retail sales taxes on food for home consumption.

Prepared food (restaurant) and alcoholic beverage sales taxes.  DC's restaurant sales taxes, which are 10% in DC, are much higher than Virginia (4% to 5%) and Maryland (6%) except that Maryland charges 9% on alcoholic beverages.  DC's rate is high as a kind of compensation for not being able to charge other taxes on income earned in the city by non-residents, plus it's a kind of tax on tourists.

Income taxes.  DC's income taxes are lower than Maryland, mostly, but higher than Virginia.  (Although note that half of the state income tax in Maryland is given back to the localities.)

Personal property tax on automobiles.  Unlike in many jurisdictions in the Virginia suburbs, DC residents who own cars (40% don't or at least don't register them in DC and park them in their backyards and alleys), don't have to pay an annual tax on cars (we can argue about why DC should have such a tax, but that's for another day, see "Testimony on parking policy in DC").

Right: redacted property tax bill, Montgomery County, Maryland.

Residential property taxes.  DC's property tax rates per $100 of assessed value are lower than most counties in Maryland but not Montgomery County (although the rate on the state webpage seems to differ from the bill at right in a manner that appears to favor DC) and most of the suburban Virginia counties and cities within the Washington Metropolitan Area as defined by the US Bureau of the Census.

Also, DC's property tax reduction for live-in owners (homestead exemption reduction of $67,500) and seniors (50% reduction) are quite beneficial, although low-income seniors benefit more from a tax cap in Maryland. Virginia doesn't seem to have equivalent benefits.

DC's property tax rate for residential property is 85 cents/$100 while in Arlington County it is 97.1 cents/$100, in Fairfax County it's $1.075/$100 of property value, and Loudoun County charges $1.235/$100.

Incorporated city/town (add-on) property taxes.  In Maryland, incorporated cities in Montgomery and Prince George's Counties charge additional taxes.  There is a slight reduction in county property taxes to reflect service costs borne by those communities, but it isn't a 1:1 reduction.  Overall, taxes in these communities can be significantly higher than in DC, for example, taxes in Takoma Park are more than double that--mostly--of comparable DC properties.

Residential property special assessment districts.  Some areas of jurisdictions in Virginia may be located in special tax assessment districts (not unlike how the cities and towns in MoCo and PG function), which adds a bit more to residential property tax obligations.  DC doesn't have such taxes (mostly, except for Business Improvement Districts, but mostly residential properties aren't included).

Plus, depending on the community, residential property owners may have to pay for sidewalk improvements as a separate tax assessment.  In DC, sidewalk costs are borne by the city as a whole.

Confusing marginal tax rates and gross (total) taxes.  While DC's marginal tax rates are lower than most surrounding jurisdictions, because houses may be worth more in DC the total annual property tax bill can be higher in DC, for comparable properties.  While what I might call DC's first tier neighborhoods (Capitol Hill, Dupont Circle, Cleveland Park, Georgetown, etc.) among the most expensive in the metropolitan area, prices in second tier neighborhoods can be exceeded by values in Arlington, Alexandria, and Montgomery County neighborhoods.  However, values in Prince George's and Prince William Counties tend to be significantly lower because of fallout from foreclosures arising from the 2008 real estate crash.

Considering an increase in the homestead exemption, acknowledging that it privileges property owners and ignores renters.  The comparatively higher value of the DC residential property market theoretically could justify an increase in the homestead exemption, to maintain "affordability" and to help DC residential neighborhoods remain competitive with lower priced neighborhoods elsewhere in the metropolitan area.

However, there is no question that such an action would privilege property owners, just as the mortgage interest deduction favors property owners.  A comparable policy to assist renters would be rent control or ceilings on prices and rent increases.

As of the 2011 Census, 58.8% of DC residents are renters.

General point about post-crash decline in property values.  While some people stated in comments to the City Paper article online that during the crash assessed property values in DC haven't dropped, that isn't true, at least in my neighborhood, when assessed property values dropped by 10% to 20%.  It is true after a year or so, property values recovered in many neighborhoods such as in Capitol Hill, and never really dropped much in other places, like Dupont Circle, Cleveland Park, or Georgetown.

Conclusion: Yes I am a broken record, how about a comprehensive review of DC tax policies?

I recommended this parenthetically in this blog entry ("Commuter/mobility tax discussion for DC") because Mayor Gray has organized a tax review panel.  I've suggested it's not likely that this tax panel will be very comprehensive in its review.

Areas that need to be considered include:

1.  the economic value of different types of residential and commercial development ("Urban planning and the difference between "economic development" and "building a local economy"");

2. how commercial properties are assessed for tax purposes ("A solution for the overtaxing of properties in neighborhood commercial districts");

3.  how "tourism" taxes are utilized--currently they mostly support the Convention Center, while I argue that arts and cultural assets should be funded in part using these funds ("Cultural resources planning in DC: In the land of the blind, the one-eyed man is king");

4.  a commuter tax on income earned by non-residents (DC is forbidden to levy income taxes on nonresidents);

5.  and my preferred alternative to a commuter tax which would be a mobility or transportation withholding tax assessed on all income earned in DC ("Commuter/mobility tax discussion for DC").

Then such a policy change could be assessed within a broader framework, rather than from the more typical idiosyncratic-ad hoc approach typifying DC's policymaking impetus.