The Districts Dime

Tech and Taxes: Why Tax Incentives Are A Bad Strategy to Boost Investment

August 28th, 2014 |

Strengthening DC’s emerging technology community has become an issue on the DC campaign trail, which is important because high-tech companies could be a major vehicle for future economic growth. Unfortunately, the discussion has turned to the idea of tax cuts for wealthy tech investors, which are unlikely to do much to promote the tech sector. Instead, tech tax breaks would worsen income inequality in DC and divert tax resources from things that can strengthen DC’s business climate and help local start-ups succeed.

It is unclear why this idea is being raised, given that it has been roundly rejected in the District. In 2013, the DC Tax Revision Commission considered and rejected a proposal to cut income taxes by two-thirds for income from tech investments. Before that, the DC Council voted against the same measure. Here’s why:

A tech capital gains tax cut would cost a lot but do little to affect tech investments.  There is no evidence that lowering capital gains taxes leads to higher economic growth. That’s likely because investors make decisions based on a start-up’s potential for success, including its access to an educated workforce and other resources. A tax break will not turn a risky investment into a good one.

Yet tax cuts on tech investments could be very costly. A capital gains tax cut would benefit investors after companies take off and become successful, when the investment gains would be large. This would divert significant resources and make it harder to support things that make DC an attractive city – such as schools, parks and libraries – or that directly help business, such as public grants for workforce development and business incubators. 

Tax breaks for tech investments would benefit wealthy investors and an industry that already gets substantial tax support. Any capital gains tax cut would likely mean that investment income would be taxed at rates lower than those faced by working DC residents. That would widen income inequality in DC, which already is fourth highest level any large city.

Tax breaks for investment income would go to tech executives whose companies already benefit from large incentives for operating in the District (see Table 1). No other industry gets such large subsidies for companies and their owners. 

If the District wants to promote tech investment, it can do so by providing entrepreneurs with the upfront supports and resources they need to attract investors – highly skilled employees, affordable workspace, and access to experienced business expertise. Focusing incentive programs on income taxes benefits very few and does nothing to help DC’s start-up community grow.

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Addressing the Student Achievement Gap Through Economic Diversity in DC Schools

August 26th, 2014 | by Soumya Bhat

Changes to school admission policies, announced last week by Mayor Gray along with changes to school boundaries, would improve access to high-performing DC Public Schools and charter schools for low-income students, starting two years from now. Enhancing economic diversity will help address the large achievement gap in the city, without limiting the educational options for middle- and higher-income students. 

The new mayor in 2015 may choose to revisit the changes in school boundaries, which were developed by the Advisory Committee on Student Assignment after several months of dialogue with DC residents. While this may make sense, the policies to improve access to high-performing schools are worth keeping.  

The two key elements of the new policy are:  

Prioritize Placement for At-Risk Students: Starting in the 2016-17 school year, DCPS and public charter schools would set aside 25 percent of their out-of-boundary seats in the lottery process for low-income students. Currently, 20 DCPS and 12 public charter schools would be affected because of their low poverty rates. 

This would promote socio-economic diversity in schools, which is linked to improving outcomes for low-income students without adversely affecting middle class students, as long as a core of middle class children attend the school. 

The Advisory Committee recommended that this preference apply to charter schools, in addition to DCPS, which would require a change in DC law. Because charter schools now account for nearly half of all students in publicly funded schools in DC, the new policy will have the greatest effect if it applies to all schools in the city. The Public Charter School Board opposes this change, which would mean a citywide charter school would need to set aside 25 percent of its available seats for low-income students. 

Subsidize Public Transit: Low-income families will need access to affordable transportation to truly be able to take advantage of this new opportunity. While students can now ride MetroBus for free, their parents cannot, which is a problem for parents with very young children. That’s why the Committee’s recommendation to offer free bus passes to parents of students in Pre-K3 through 5th grade makes sense. 

For more information on the final set of recommendations released by the Deputy Mayor for Education, see here.

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DC’s Minimum Wage Increase Will Help Thousands of Residents Make Ends Meet

August 20th, 2014 | by Wes Rivers

The increase in the District’s minimum wage to $11.50 an hour will lift the incomes of thousands of DC residents, according to a new study by the Urban Institute. A significant share of the affected workers affected are at or near poverty, and most are major breadwinners for themselves or their families. This means that the minimum wage increase will help reduce income inequality in DC.  What’s more, the study may understate benefits that workers could experience given recent income tax reforms that will reduce taxes for low- and moderate-income households. 


The study looks at the minimum wage’s impact on worker’s earnings and on disposable income – the net income gain after taking into account taxes and any reductions in government assistance programs resulting from the earnings increase. It finds that the new minimum wage will: 

Affect a large share of workers: 41,000 District residents – or one in eight working adults – will be affected by the new minimum wage. Two-thirds these residents work year round (48 weeks or more).

Help low-income residents: About 55 percent of those affected workers live in households with incomes below or near the poverty line. 

Provide significant increases in earnings and income: Half of these workers will see a $1,500 or larger increase in annual earnings. And the vast majority of workers will keep more than half of their earnings gains as disposable income, after taxes and reductions in government benefits are considered. For example, a single adult without children working full-time will see up to $4,000 increase in disposable income, from $15,700 to $19,700. 

The study noted that income increases will be modest for some families, either because they already are earning close to $11.50 or because they receive a number of public benefits that will phase down. But this does not negate the fact that many workers will see notable income gains. 

Moreover, the study may understate net benefits to workers. This is because it relies on income tax and public assistance rules from 2011, and, in particular, does not take into account a package of tax changes adopted in July that will cut income taxes significantly for low- and moderate-income residents. That means workers should be taking home much more of what they earn in 2016. These changes include raising of the standard deduction and the expansion of the Earned Income Tax Credit (EITC) for childless adults. The expansion of the DC EITC will be especially beneficial given that most minimum wage workers are single adults without children. 

Higher wages and lower taxes means low- and moderate-income families will have more disposable income to spend on essentials like food, school uniforms, or night classes. The benefits of the new minimum wage are exciting, and in combination with recent tax changes, will help make work pay for more District families.

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Back to Basics: Profiles of DC’s Key Health, Housing and Tax Assistance Programs

August 15th, 2014 | by Kathy Haines

Local taxpayer dollars support many important services that help DC residents with basics like healthcare, affordable housing and tax assistance. We at the DC Fiscal Policy Institute have used our summer to update easy-to-read summaries of the largest of these programs. We’ve included information on who is eligible, services that are provided and areas for future focus.  

Here is a snapshot from each updated brief. Click on the links below to read the complete summary of each program.

                         HEALTH CARE & HOUSING

Medicaid8.15.14 doctor

  • Provides:                     Health insurance
  • Impact:                        Assists 225,000 residents (roughly 1 in 3 DC residents)            
  • FY 2015 Budget:        $700 million local funds, $2.1 billion federal funds

Healthcare Alliance

  • Provides:                     Health insurance for those who don’t qualify for Medicaid
  • Impact:                        Assists 14,500 residents (primarily undocumented residents)
  • FY 2015 Budget:        $50 million in local funds

Housing Production Trust Fund (HPTF)8.15.14 apartment building

  • Provides:                     New or newly renovated affordable housing
  • Impact:                        Built or preserved an average of 400 units annually since 2009              
  • FY 2015 Budget:        $40 million in local funds


DC’s Earned Income Tax Credit (EITC)

  • Provides:                     Refundable tax credits to low-income working residents
  • Impact:                        56,000 families or individuals received the EITC in 20118.15.14 dollars
  • FY 2015 cost:              $55 million

DC’s Low-Income Property Tax Credit, also known as Schedule H                                    

  • Provides:                     Property tax assistance for renters and owners
  • Impact:                        8,300 tax filers received Schedule H in 2011
  • FY 2015 cost:              $19 million

Stay tuned to the District’s Dime for new and updated policy briefs from DCFPI on key programs that help DC’s low- and moderate-income residents. 

To print a copy of today’s blog, click here.

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Health Reform Means Big Changes for Medicaid Eligibility Rules and Processes

August 12th, 2014 | by Wes Rivers

The Affordable Care Act has allowed the District to improve access to health care through Medicaid, by making more residents eligible and by expanding Medicaid services. The ACA also changed the way many residents will apply for and renew their benefits starting this fall, in ways that should make it easier to get and keep health coverage. But the changes – particularly in how income is counted to determine Medicaid eligibility – may be confusing to some. 

We want to explain those changes today, doing our part to make the transition easier. 


Changes in How Medicaid Will Count Income to Determine Eligibility 

The Affordable Care Act changed the way DC and the states collect income information from people applying for Medicaid, with the new format closely following how we report income on federal income tax forms. The new method is known as Modified Adjusted Gross Income (MAGI).

This makes sense because the same income rules and application are used to determine whether residents are eligible for tax credits and subsidies to help pay for health plans sold on DC Health Link. The tax credits and subsidies are for people with incomes that are moderate but too high to qualify for Medicaid. 

This means that residents who are not sure whether they are eligible for Medicaid or for the tax credits can apply for both using just one application. The new process will also make it easier for administrators to verify income and eligibility through federal data sources. 

How to Apply for and Renew Medicaid Benefits 

The creation of the DC Health Link – DC’s online, health insurance marketplace – and the new income-counting methods make it easy for DC residents to apply for Medicaid. And they should make it easier to renew their eligibility each year. 

Starting in November 2014, the District will send current Medicaid recipients a pre-populated renewal form to collect missing tax and income information. After filling out the form this one time, the renewal process for every year going forward is “passive” – meaning that residents may not have to do anything to maintain their eligibility. The District will match information provided on the form to federal and local data hubs to verify eligibility. The recipient will not have to complete renewal forms again unless the data hubs return inconclusive results. 

It should be noted that the application and renewal processes remain largely unchanged for people who are Medicaid-eligible due to age or disability status. Moreover, new Medicaid applicants who have applied since October 2013 will not have to fill out the renewal form. 

Any time systems change, there are technical glitches and consumer confusion, so providers and consumer representatives should familiarize themselves with the new processes before November. This presentation is a good resource that walks through the renewal form.

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