February 26, 2013 | by Mark Lee
D.C. ignores sales tax hike roll-back

The city’s elected officials are hoping we have short memories.

Or at least don’t recall that a “temporary” sales tax increase was renewed on an indefinite basis last year when promised to expire. Extended despite a $240 million revenue surplus, followed by a subsequent and whopping $417 million largess announced last month.

In 2009, with the city facing revenue shortfalls, the D.C. Council and then-Mayor Adrian Fenty approved the Budget Support Emergency Act, increasing the general sales tax for a three-year period and set to subsequently sunset. Last year city officials indefinitely continued the higher six-percent rate, reneging on a scheduled return to the former 5.75 percent tariff on Oct. 1.

The lesson, of course, is clear. Never give free-spending politicians access to more money through an allegedly short-term tax increase without expecting to have to wrest it out of their hands when the expiration date arrives.

One fortunate fact does, however, benefit locals – the city’s notoriously elevated taxation levels, among the very highest in the country in categories both individual and corporate, preclude local politicians the nerve to call for further raising rates.

I’m betting they are also hoping that we didn’t notice that they were practically salivating over another projected revenue surplus at the D.C. Council monthly breakfast meeting with the mayor on Tuesday.

Council member Marion Barry is reported to have blurted out an admonition that they should “spend it now.”

They might have collectively broken out in song, waving their hands in the air while reprising the refrain from the classic tune “For the Love of Money” by the O’Jays: “Money, money, money, money, money – MUH-ney.”

Alas, not one word about the overdue termination of D.C.’s supposed short-term general sales tax increase.

City officials should heed the call of D.C. Council member Jack Evans, chair of the Finance and Revenue Committee, and rescind this temporary sales tax hike.

Returning the sales tax to its prior rate would cost the city only $16 million – a modest portion of coming budget surpluses and a small price to pay for protecting the reliability of their word. Not to mention that levies on sales transactions for general goods are a highly regressive levy, requiring lower income residents to pay a more significant share of their household income on standard purchases than those with higher incomes.

However, in the handful of days since outgoing D.C. CFO Natwar Gandhi released official city revenue projections for individual fiscal years through the period ending Sept. 30, 2016, the local political class has begun ringing up their wish lists on the public cash register. The projected revenue bonus amounts are relatively modest, exacerbating competition in the desire to spend it.

D.C. is expecting to net an additional $190 million in the current fiscal year – less than half of last year’s surplus, primarily due to the initiation of national government spending reductions. Gandhi cautions that his projections for the second half of the period, beginning next month, “anticipates lowered revenue and slower revenue growth” as the federal government undertakes “measures to tame the growing budget deficit.”

The onset of ongoing federal expenditure downsizing is expected to cost the city $90 million in lost tax revenue in the latter part of this fiscal year. Given that slightly more than a quarter of employed D.C. workers call Uncle Sam boss and with the city relying on in-town spending by also-affected regional residents for its economic vitality, that projection may be low.

Surpluses for the following two years are expected to come in lower, at only $178 million each, with a slight uptick to $199 million in 2016. Mayor Vincent Gray has already pledged to propose diverting 65 percent of next year’s projected surplus to fund only two announced initiatives. Gray recently outlined a plan to allocate $100 million to finance affordable housing, with another $15 million in non-profit grants.

It’s time for District politicians to utilize at least a portion of the city’s financial bounty for much-needed and long-overdue tax relief for both residents and businesses.

At least then we might be more willing to forget – and forgive.

Mark Lee is a local small business manager and long-time community business advocate. Reach him at OurBusinessMatters@gmail.com.

2 Comments
  • With all due respect to Mark Lee and I do have a lot of respect for him and all he has done for the business community in the District of Columbia, and whether I agree with his columns or not I always find them interesting and definitely worth reading- the city’s residents aren’t clamoring for tax relief and business in DC is currently doing just fine.

    I suggest that maybe we use the $16 million he speaks about generated by the small sales tax increase that was passed a few years ago- to fund additional programs that will help our most needy residents with job training, education opportunities, and increased access to healthcare among so many other needs they have.The two announced initiatives of the Mayor- affordable housing and a small grant fund for small non-profits are both important initiatives that also deserve funding. I think some of the additional revenue projected for the current year will also go to working out long overdue union contracts with city workers.

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