Guiding Principles for DC’s Tax Revision Commission
Yesterday, DC’s Tax Revision Commission met for the third time, and much of the discussion was focused on setting the framework for future analysis and decision making. The commission approved a set of guiding principles, as well as discussed what research the commission would undertake over the next nine months. Finally, the commission heard presentations from the Office of the Financial Officer on DC’s governance structure, revenue system, and operating and capital budgets.
Guiding Principles for Judging a Revenue System
While a good portion of the commission’s work over the next year will be devoted to research and education on the various components of a revenue system and how they work in DC, when it comes time to recommend changes to DC’s tax system the commission adopted a set of guiding principles that they’ll use in their deliberations. Briefly, those principles are:
- Certainty: A revenue system should produce enough revenue to support a set of agreed upon public services. This means that the system should include the right mix of revenue sources that will respond to DC’s changing economy but also a sufficient set of stable revenue resources that do not rise and fall drastically with changes in the economy. Relying too much on volatile revenue sources is not wise.
- Neutrality: Taxes and fees should be designed to minimize unintended impacts on private economic decision-making in the real world. There are times when a tax is used to influence behavior–for example, many states levy high taxes on cigarettes to discourage smoking–but the general goal is to levy taxes in a way that does not affect economic activity.
- Competitiveness: The commission should examine DC’s revenue system against our surrounding jurisdictions and look at the impact it may have on DC’s economy. At yesterday’s meeting, commission members stated that DC’s competitiveness is not based solely on our tax rates, but that taxes should be examined where they may have some impact on competitiveness.
- Equity: This principle refers to how to allocate the impact of the revenue system across the District. There are two main sub-principles here: horizontal equity, i.e. two people or businesses under the same circumstances should be paying the same amount of tax; and vertical equity, i.e. those who have a larger slice of the economic pie have a greater ability to pay more–and should–in taxes.
- Transparency and Accountability: A tax system—and changes to it—should be understandable to the public. If the revenue system is more transparent, it can make it easier for the public to hold officials accountable on tax policy decisions.
- Simplicity of Compliance and Administration: A revenue system should be designed in way that makes it as easy and simple as possible for individuals and businesses to comply (from record keeping to filing to appeals) and the government to administer the system.
The commission also talked about its research agenda for the next nine months which will include DC’s economy, frameworks, models for evaluating the impact of tax changes, and specific reviews of sales, income, property and business taxes, to name a few. The full research agenda, which is still a draft, can be found here.
Lastly, the commission received three presentations from the CFO’s office on: DC’s Governance and Fiscal Structure, DC’s Revenue System, and DC’s Operating and Capital budgets. The presentations include a wealth of information on revenues and expenditures and their changes over time.
The Commission’s next meeting is set for November 5th where they will talk about DC’s economy. Tune into the District’s Dime for updates on the Commission’s work as they move forward.