On Tuesday, the D.C. Council gave final approval with only a single dissent to a significant, if largely symbolic, measure of historic and first-in-15-years tax relief for residents and businesses both.
While too modest in size and too lengthy in implementation, community businesses welcomed the modicum of phased-in tax cuts like a thirsty camel in a desert. An attempt by the Council to recast the District as more business-friendly and regionally competitive, corporate tax reductions will slowly take effect over five years. Rates will then match only the excessive extraction levels of neighboring nemesis-to-enterprise Maryland when fully complete. The tax rate in adjoining Virginia will remain substantially lower.
The tax reform provisions originated with recommendations finalized last December by the D.C. Tax Revision Commission, chaired by former mayor Anthony Williams. After the proposals were unexpectedly shunted aside by Mayor Vincent Gray to sit pretty on a shelf in his Wilson Building office, D.C. Council Chair Phil Mendelson surprisingly and successfully lined up the support of his colleagues in a controversial behind-the-scenes eleventh-hour alternate budget drafting outside of public view. It soon became clear the Council would unexpectedly embrace nearly all of the commission’s reforms and strike a decidedly unfamiliar economic posture.
Spending, however, continues to rise – nearly doubling in a decade to $6.8 billion in locally originating tax revenues, part of a nearly $12 billion total annual city budget. The Council’s free-spending ways have not been reformed, only the tax-taking component. The meager measure of tax relief does not represent spending constraint.
The ease of approval for a comprehensive package of income and business tax cuts was a tacit acknowledgement of the need and necessity for relief. Although to be “triggered” by sufficient new tax revenues in order to convey – $143 million in the first of five years, for example – business operators are confident that the city’s average of more than $280 million in recent annual surpluses will guarantee activation.
This unforeseen political development was also an important signal that revenue restraint was likely to remain dominant for the foreseeable future. The fact that it occurred absent serious opposition was astonishing. In fact, an impressive array of disparate groups and community opinion leaders wholeheartedly embraced the full tax relief package and worked hard to emphasize to the public that all the balanced parts were necessary to achieve the gamut of tax-lowering elements.
Gray is grumpy about losing control over the final budget in his now lame duck single term and flung condemnations against the Council tax provisions and budget details like spitballs. A mayoral veto, however, is clearly unsustainable.
These until recently unanticipated political developments represent stark philosophical crosscurrents in a city of two tales, often at odds.
One story is a government with an intractable appetite for hunting and hurling cash, often with little or no effective performance oversight. The other is the narrative of local enterprises long burdened by official disrespect and disregard, and notoriously high tax rates – all while infamously over-regulated and saddled with simultaneously silly and serious operational mandates and restrictions. Local business owners have a litany of tales to tell – some amusing, most not.
It’s the dichotomy between spendthrift politicians lusting to feed incessant urges contrasted with independent enterprise leaders burdened with the ravages of a seldom-satiated beast.
Council members look to the boom in business and, like the junkies they are, think few levies on the city’s benefactors unreasonable. Entrepreneurs are befuddled that politicians never stop to consider the impact tax policies and regulatory obstacles have on the ability to grow jobs and share the fruits of success with those in search of work, in need of opportunity, in hope of comfort.
While some limited tax relief is on the way like water dripping from a leaky faucet, restraining revenue will serve to slow spiraling expenditures and compel elected officials to spend more wisely and less wastefully. That will benefit us all.