Striking a Balance: Sensible Revenue Options for Next Year’s Budget

March 7th, 2012 | by Elissa Silverman

How should Mayor Gray close the $164 million budget gap for next year? Yesterday we argued for a balanced approach, and today we present sensible ways for the Gray administration to add critical dollars to next year’s operating budget and keep our city prospering and growing. DCFPI has shared these ideas with the Mayor’s budget team, and we hope our District Dime readers will let Mayor Gray know which ones you support as he and his top staffers spend the next week finalizing the budget plan for Fiscal Year 2013.

Sensible Option #1: FORGO $50 MILLION TO PAY-GO
Pay-go is the “pay-as-you-go” approach to pay for capital projects instead of using more conventional financing through borrowing. Using yearly operating revenues for capital projects is a practice that might be sound when finances are very strong, but doing it when there are budget gaps and financial uncertainty strains resources unnecessarily, especially when borrowing rates are low. The amount we will save on capital expenditures is small compared with the human consequences and long-term budget impact of not making this money available for immediate needs, such as finding appropriate housing for 200 homeless families currently in motels. Therefore the Mayor should opt NOT to dedicate one-quarter of unanticipated revenue to pay-go, which was a provision inserted into the FY 2011 Budget Support Act, and put these dollars toward needs in the FY 2013 operating budget.

The Gray administration should apply the 8.95% rate for income above $350,000 to household incomes, instead of the current policy of applying it to individual income. Right now, a married couple earning $700,000—with one spouse earning $350,000 and another earning $350,000—faces absolutely no tax increase from the new rate because these high-income earners are allowed to report income separately on their joint tax return. Requiring them to report combined income is really a technical change to the high income earners’ tax last year, as the intention was to target high-income households. A Hart Research poll last year showed overwhelming support by DC voters for a higher rate starting at $200,000, even among those impacted by the change.

Maryland Governor Martin O’Malley, for example, in his budget for next year proposed reducing the personal income tax exemption for higher-income households. DC also offers tax breaks that no longer need to be incentivized—such as a tax break for purchasing hybrid vehicles.

We spend more and more of our dollars on services; take pet grooming, in which Americans spent nearly four billion dollars in 2011 according to one study. Yet many of these services are currently exempt from the sales tax. In other words, if you buy shampoo and a razor to clean Fido yourself you get taxed on the purchase of these goods, but if you bring Fido to the groomer, you don’t. It’s time to level the playing field and make these types of services taxed at the same rate as goods.

Taking these options would bring a balanced approach to the Fiscal Year 2013 budget.

One Response to “Striking a Balance: Sensible Revenue Options for Next Year’s Budget”

  1. […] why it couldn’t, as the DC Fiscal Policy Institute suggested, borrow for some capital projects, at current very low interest rates, rather than immediately pay […]