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Tom: First of all, taxing income earned in DC by people not living in DC is, by definition, what is often called a "commuter tax." I think there is some confusion in some people's minds (and was in NYC as well) that a "commuter tax" is some kind of special tax that says "people who commute in have to pay extra money." It's not; it's just the way that in most states, you pay taxes to the state where you earn income and get a credit against your taxes to your home state for it.

When scholars say DC needs "a commuter tax," what they are really saying is that DC needs the power to do this same thing that other states do. You probably knew this but it's a little unclear from the way you phrased your comment, so I wanted to make sure that's clear for everyone else.

As for people with residences in no-income-tax states, I am not sure but I think that is mainly retirees or other people who spend a significant amount of time in another state, or else it is Congressional staffers who have a separate exemption allowing them to remain official residents of their home states. I suspect Congress wouldn't want to end that exemption. There are a lot of Hill staffers, but it's still not a big percentage of DC workers.

Retirees can pick other states for their legal residence because you have to spend most of your time in that other state for it to count. Someone who actually works a full-time job in DC probably can't do this, at least legally.

Some or even many people might do it illegally, but DC could step up enforcement. California, for instance, is very fierce about auditing people who make a lot of money (such as through a startup IPO) and then become residents of Nevada.

DC could probably get some money from having the ability to tax income by residents of states besides MD and VA that's earned in DC, but I suspect it would be extremely small compared to the structural deficit. The vast, vast majority of income earned in DC by residents of other states is by residents of the adjacent states.

by David Alpert on Jul 28, 2012 12:18 pm • link • report