DC’s Tech Sector Is Attracting Investment — Without the Lure of Tax Breaks

August 23rd, 2012 | by Jessica Fulton

DC’s emerging tech sector got some good news last week with the announcement that tech executives from around the country — including Amazon’s CEO, Google’s Chairman, and Twitter’s co-founder — recently invested $10 million in DC-based EverFi. Along with major companies like LivingSocial, smaller start-ups are attracting wealthy investors from across the country, a nod to DC’s favorable business climate and its highly educated workforce. EverFi offers online lessons in life skills for colleges and high schools.

The District government rightly wants to play a role in promoting the tech sector here.  But there are signs that these efforts may be going too far.  The District for years has offered a very generous set of tax incentives to high-tech companies, and just last month the city approved a $32.5 million package for LivingSocial.  Now this September, the District Council will vote on yet another bill aimed at the tech sector, this one to offer a huge tax cut for investors in tech companies, including some very wealthy executives.

The proposal would allow tech millionaires to pay a lower tax rate on their investment income — just three percent — than the income tax rates paid by working District residents on their paycheck. If this happens, the District would be creating its own version of the national problem pointed out by Warren Buffett, with wealthy individuals paying lower rates that most District citizens.

And to what end? Investment groups and individuals from across the country have invested millions in DC, not because they expect lower tax rates when they cash out, but because they believe in entrepreneurs in the District. In fact, there is no evidence nationally that cutting investment tax rates leads to more business investment or better economic outcomes.  The District does not need to cut taxes to get wealthy individuals and investment groups to invest in the District tech industry; they already are.

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