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For Immediate Release: September 20, 2006
After three years of substantial income and property tax cuts, the taxes paid by middle-income DC households are lower than in either the Maryland or Virginia suburbs, according to a new study by the DC Fiscal Policy Institute. This flies in the face of the conventional wisdom that DC’s taxes are the highest in the region.
“The common perception is that DC residents pay the highest taxes in the region,” said Aleksandra Gajdeczka, a co-author of the study. “In fact, the opposite is true.”
The study applied income tax rules to hypothetical families earning $50,000, $100,000, and $150,000. It assessed property taxes using actual property tax bills for a sample of homes sold in each jurisdiction in the past year. DC taxes are consistently lower, the study shows, than in suburban Maryland and in most cases than in suburban Virginia.
DC’s lower taxes stem from its relatively low property taxes. For example, property taxes average $1,600 in 2006 for DC homes worth $400,000, compared with $2,400 in Montgomery County and $3,300 in Fairfax. DC has a relatively low tax rate, a homestead deduction, and a cap on annual increases. No other area jurisdiction has all of these.
The study also shows that DC income taxes are lower than in suburban Maryland, but higher than in Virginia. The study notes that Virginia is the only local jurisdiction to have an annual tax on cars.
Study Questions Whether Tax Cuts Went Too Far
DC’s regional tax status reflects income and property tax cuts implemented in recent years. Before the cuts, DC taxes were similar to Maryland’s and only modestly higher than in suburban Virginia.
“New tax cuts are not needed to meet the goal of “˜tax parity’ in the region,” noted Ed Lazere, the DC Fiscal Policy Institute’s executive director.
Because DC’s taxes in some cases are lower by thousands of dollars than in the suburbs, DCFPI’s study questions whether the District has struck the right balance between lowering taxes and investing in services. Income tax cuts in the last three years largely benefited DC’s highest-income households and have resulted in annual revenue losses of $140 million. The report notes that the tax cuts have reduced revenues that otherwise could have been used to improve libraries and schools, address the city’s tremendous housing and health care challenges, or meet other needs.
“Every dollar in tax cuts is a dollar that cannot be used to improve services,” Lazere said. “What opportunities have we given up to make DC’s quality of life better by our zeal to cut taxes?”
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The DC Fiscal Policy Institute conducts research and public education on budget and tax issues in the District of Columbia, with a particular emphasis on issues that affect low- and moderate-income residents.