Testimony of Lindsay Clark, Policy Analyst, To the Committee on Finance and Revenue| April 9th, 2008 |
Chairperson Evans and members of the Committee, thank you for the opportunity to speak today. My name is Lindsay Clark, and I am a policy analyst with the DC Fiscal Policy Institute. DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with a particular emphasis on policies that affect low- and moderate-income residents.
I am here today to commend the Mayor’s proposal to expand DC’s Earned Income Tax Credit, as well as to encourage the District to make updating and simplifying the DC Homeowner and Rental Property Tax Credit (Schedule H), its next priority for low-income tax relief.
I would like to start by saying that DCFPI applauds the Mayor’s proposal to expand DC’s EITC from 35 percent to 40 percent of the federal credit, making it the largest state EITC credit in the nation. This expansion will provide $39 million in tax relief, with an average benefit amount of $865 per household. These additional resources will help low-income households, including those negatively impacted by the slowdown in the economy. A recent analysis by the Washington Post finds that rising inflation is hitting low-and moderate-income families the hardest, making it more difficult for these families to purchase basic necessities. If adopted, the EITC expansion will increase the average benefit amount by nearly $200 from the 2005 levels, helping some 47,000 low-income working families to better meet their basic needs.
As the next priority for low-income tax relief, we recommend the District update and simplify its low-income property tax credit, called Schedule H. This is also a recommendation of the Fair Budget Coalition and of the Poverty Reduction Coalition initiated by Councilmember Barry.
Schedule H is an important tool designed to help low-income renters as well as homeowners. As in other states, Schedule H assumes that a portion of rent paid is property taxes passed on from the landlord. Seventeen states including the District of Columbia provide property tax relief to renters through a tax credit or rebate.
Unlike DC’s EITC, however, Schedule H has been allowed to languish, resulting in a credit that provides only modest benefits to a small number of low-income households. As I stated in my testimony on February 27, DC’s Schedule H credit has not been updated for inflation since it was created in the late 1970s. The income eligibility ceiling is just $20,000, among the lowest when compared with tax credits in other states. The maximum credit of $750 also has not been adjusted in decades. If Schedule H had been adjusted for inflation, the income limit would now be $53,000 and the top benefit would be $2,000. Moreover there are unnecessarily complex eligibility requirements that also limit participation and unduly impact renters.
Updating and simplifying Schedule H is important because low-income households —- and particularly renters —- are the most likely to be pressured by housing costs, including property taxes, and thus are the most in need of the help that property tax relief can provide. Some 46,500 low-income households pay more than 30 percent of their income in housing costs, and of these households the vast majority (81 percent) are renters.
In my testimony in February, I outlined some recommendations for improving Schedule H, such as raising the income ceiling to $50,000 and maximum benefit amount to $1,000 to make up for some of the ground lost due to inflation. These changes would make property tax relief available to some 36,000 to 73,000 low-income residents, depending on participation, and provide an average benefit amount of about $700. Given the tight fiscal situation faced by the District, such an expansion currently may not be feasible. However, the cost of updating Schedule H depends on the specifics of the proposal, and it is possible to gradually implement changes as funding in the budget becomes available. Most immediately, the Council might consider simplifying the complex reporting requirements to make it easier for residents to apply. At the last hearing, Chairman Evans, you recommended we continue to work with your staff in the event the budget situation improves. We appreciate your willingness to work on this important issue, and we hope to continue to do so.
The District of Columbia recognized the importance of targeting property tax relief to low-income households when it created Schedule H nearly 30 years ago, and updating Schedule H to be more effective should be a high priority for improving tax policy in the District.
Thank you for the opportunity to speak today. I am happy to answer any questions.
 Neil Irwin and Alejandro Lazo, “Inflation Hits the Poor Hardest: No Income Group Is Untouched, but Staples Are Rising Fastest,” Washington Post, March 21, 2008, p. A01. Available at http://www.washingtonpost.com/wp-dyn/content/article/2008/03/20/AR2008032003517_pf.html
 Lindsay C. Clark, “Property Tax relief for DC’s Low-income Residents: Improvements in Schedule H Needed in DC’s “Schedule H” Credit,”. DC Fiscal Policy Institute, April 8 2008, http://dcfpi.org/?p=152