For Many Families, DC Taxes Are the Lowest in the Region
Over the last decade, DC has quietly become the lowest-tax jurisdiction in the region. Because of tax decreases in the District and increases in surrounding areas, District residents now generally pay taxes that are lower than – or in some cases the same as — their neighbors in adjacent counties. A new DCFPI report, Taxes on DC Families Remain Lowest in the Region, reveals how taxes paid by a variety of DC families compare with taxes paid by their neighbors.
This analysis calculates the taxes paid by hypothetical families of different sizes and compositions at three income levels — $50,000, $100,000, and $200,000 – in the District and in Montgomery, Prince George’s, Fairfax, and Arlington Counties. It includes income and property taxes and the annual tax on cars in Virginia.
• In 2009, combined income and property taxes on most DC residents earning from $50,000 to $200,000 were lower than in any adjacent jurisdiction. For example, a DC married couple with two children and income of $100,000 paid $5,200 in income and property taxes, compared with $7,200 in Montgomery County, $7,600 in Fairfax County, and $10,000 in Prince George’s County.
• DC’s lowest-in-the-region tax status results mostly from its low property tax. DC has a relatively low property tax rate, a homestead deduction, and a cap on annual increases.
• DC income taxes on residents with incomes between $50,000 and $200,000 are lower than in the Maryland suburbs, but higher than in the Virginia suburbs. However, Virginia is the only area jurisdiction to also levy annual taxes on cars.
• In recent years, combined income and property taxes have increased less for DC residents than for residents of surrounding jurisdictions. From 2006 to 2010, DC’s taxes on a two-parent two-child family earning $100,000 increased by 13 percent — due to rising property values — compared to 30 percent in the Virginia suburbs, 18 percent in Montgomery County, and 54 percent in Prince George’s.
Being the ‘low-tax leader’ is not a title the District should necessarily strive for. Residents of DC’s suburbs pay higher taxes because they value the services that come with that. On the other hand, a continued focus on low taxes in DC could lead to reductions in services and compromise the quality of life and competitiveness that the city has worked hard to attain.
The upcoming fiscal year 2012 budget season is likely to include debate on tax options as well as on how to cut services. DCFPI’s new findings suggest that raising taxes to help preserve investments in areas like education and health care will not bring DC taxes out of line with our neighbors.
The full report can be found here.