Tax Commission Tuesday: Making DC’s Income Tax Fair for All
It’s Tuesday, which means the return of our weekly focus on important research generated by the DC Tax Revision Commission. Today we focus on one of the key goals of the commission, as laid out in the legislation that established it: to make recommendations to improve the “fairness in the apportionment of taxes.”
Those are pretty fancy words for a pretty simple idea – that tax rates paid by DC residents should be based on their ability to pay. Unfortunately, as the commission learned this year, the current DC tax system is imbalanced. Low- and moderate-income families pay the most in taxes as a share of their income, far more than our highest-income residents. Fortunately, though, there are several ways to level the playing field that the commission can consider. We list our three favorite ideas below.
How can DC make this a fairer system? Here are three for starters:Families in DC’s middle, with incomes around $50,000, pay 11 percent of their income in DC income, sales and property taxes. That’s $5,500 in DC taxes for a family earning $50,000. Meanwhile, the highest-income one percent pay just over 6 percent of income in DC taxes.
- Increase DC’s standard deduction and personal exemption. These income tax provisions are available to all residents, but they provide the biggest benefits to low- and moderate income residents. DC’s standard deduction and personal exemption are far lower than the federal government’s and than the deductions in most states. By increasing the standard deduction and personal exemption to match the federal levels, DC could exempt working poor families from income tax and provide substantial tax help to moderate-income families, too.
- Expand the Earned Income Tax Credit (EITC) for adults without children. The EITC provides tax refunds that help make work pay for low-income working families. However, low-income residents without children receive far less support. For example, the maximum DC EITC benefit for a worker with one child was $1,268 in 2012, while a single person without children could get no more than $190.
- Change DC’s income tax brackets and rates. Until recently, DC’s top income tax bracket started at just $40,000 of income. A new bracket for families earning more than $350,000 was created in 2012—but that still leaves moderate-income families paying the same rate as families with incomes up to $350,000 of income – a pretty wide gap. It is time for DC to take a fresh look at where it sets its rates and brackets, based on today’s income distribution in DC so middle-income residents don’t have the biggest tax liability.
DCFPI looks forward to the tax commission’s consideration of these recommendations and others to achieve the goal of fairness.