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Reciprocity between Maryland and Virginia makes sense as the out of state income earned is probably roughly equivalent between the two.

I have a coworker whose wife was a high powered partner in a law firm here in DC. Every year he would tell me how complicated their taxes where because she had to pay income tax to every state where the firm did business. Then he would add, with the great satisfaction, they they didn't pay a single cent to DC despite the fact that probably >90% of the income was earned there.

Maryland and Virginia will never permit DC to collect a commuter tax as they would loose out in the bargain. When it comes down to principle and money money generally wins out.

I feel retrocession back into Maryland makes the most sense economically. But Maryland has a tenuous balance of power between Baltimore, the DC suburbs, and the rural parts of the states so that doesn't appear likely to happen.

Another approach I've heard that is appealing to some "low tax" Republican types would be to eliminate the federal tax altogether in the district. The federal government would end its special payment and DC could raise its state tax to offset the payment and more. I think residents still would come out ahead.

And this would end the "taxation without representation" argument and put DC on an equal footing with other US territories that also don't have representation and thus do not have to pay federal taxes.

by JeffB on Jul 29, 2012 11:00 am • link • report