How Can a Tax Cut Possibly Increase Revenues for DC? (Answer: It Can’t)

September 17th, 2012 | by Ed Lazere

Education reform is a top priority for the Gray administration, but lately it seems the mayor wants to reform the basic rules of math itself. Usually when you perform subtraction, there is less than when you started.  When taxes are cut, for example, that reduces the amount of money available for important public assets like schools, parks and transportation. 

Yet the Gray administration recently claimed that cutting taxes for wealthy investors in DC tech companies, which will be before the DC Council on Wednesday, would have a “positive fiscal impact” — a fancy way of saying it would add revenue.  This claim is based, they say, on the fiscal impact statement prepared by the Office of the Chief Financial Officer. A full-reading of the statement, however, clearly states that the tax cut could substantially reduce city revenues. 

The Technology Sector Enhancement Act would, among other things, set a three percent tax rate for wealthy investors, which as we have noted over the past few weeks is a lower tax rate than any working DC resident pays on her or his paycheck. Turning DC’s tax system upside down — letting some of our wealthiest residents pay the lowest tax rates — could only be justified if there were clear evidence that the city as a whole would be better off.  

Claiming the tax cut would raise revenues is an effort by the mayor to suggest that we will all be better off.  But tax cuts result in reduced revenues—not increases. And that’s exactly what the CFO states in the fiscal impact statement. It notes that some other provisions of the bill, which have nothing to do with the investor tax cut, would modestly increase revenues. This is where the mayor’s “positive fiscal impact” claim comes from. 

The CFO’s analysis of the investor tax cut, by contrast, and another provision of the bill, finds that the long-term negative impact cannot be reliably estimated at this time, but it could be substantial.”  So the CFO is conclusive that the impact will be negative, but they can’t be specific on how negative because right now, the value of the tech company holdings is unknown as the companies are still privately held and have not gone public yet. 

In other words, the CFO has confirmed the most basic tenet of tax math: Reducing taxes leads to reductions in revenues.  You can find the fiscal impact statement here.  

 

Click bit.ly/RS69X4 to tell the Council that DC cannot afford tax cuts for tech millionaires!

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