Testimony of Elissa Silverman, Communications and Policy Associate, DC Fiscal Policy Institute, for the Public Oversight Hearing on The FY 2009 and FY 2010 Budget Gap Closing Plan, District of Columbia Committee of the Whole

Chairman Gray and members of the Council, thank you for the opportunity to speak today.  My name is Elissa Silverman, and I work for 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 will use my time to address a specific topic: the need to raise revenue during tough economic times.

Many prominent economists, including the 2001 Nobel Prize winner and the current head of the Office on Management and Budget, have said that relying strictly on cuts to balance budgets during a recession might be more harmful to the local economy and stall a future recovery than raising certain taxes would.

This is because cuts to government spending on goods and services take money directly out of the local economy and might push households on the brink into perilous circumstances. This slows down the economy even more, by pushing families deeper into poverty and making it more difficult for them to contribute and be productive when things improve.

DC has relied heavily on spending reductions and cuts to address the current budget crisis – with very few revenue enhancements. In DCFPI’s initial analysis of the FY 2010 budget earlier this spring, we identified approximately $120 million in revenue boosts, but a majority of these dollars came from increased fees, such as parking enforcement. Tax increases totaled just $10 million in the $800 million gap-closing plan.

For a number of reasons, the Council should consider revenue increases as it develops

a plan to address the new budget shortfall.   The Mayor’s budget proposal is not balanced, with $100 million in budget cuts and just $7 million in new revenue.  The Council’s budget plan is likely to require even more gap-closing.  Raising revenues would help limit the service reductions needed   It also is worth noting that the District adopted hundreds of millions of tax cuts in the boom years prior to the downturn.

A majority of states have opted to take a balanced approach by both cutting spending and looking for revenue. Since Jan. 1, some 30 states have raised taxes and another seven are considering it. As we all know, budget crisis is not unique and almost every city and state across the country are facing similar and even more daunting budget gaps.

I am happy to provide you and other members a list of the states that have passed or are considering passing tax increases to close their budget gaps.

Now I want to specifically address one proposal that has been introduced and has received a very chilly reception from the council: Increasing the top personal income tax rate.

This proposal should be taken seriously. A number of states, including California and Maryland, have recently raised taxes on high earners, and about 10 states are now considering such a measure. In fact, the new rate in DC would remain below the top rate in the Maryland suburbs. It would not only generate needed revenue, but also shift the District in the direction of a more progressive tax system.

The DC Fiscal Policy Institute has developed a number of other proposals that would raise revenue while also promoting improvements in our tax system, and we would be happy to share and elaborate on those as well.

I would be happy to answer any questions.