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The District of Columbia gets the short end of the stick today both in terms of Congressional representation and in the inability to raise revenues from suburban commuters.

One limitation in incorrecting these injustices is that advocates for the District tend to push solutions that would give DC a very long end of the stick, rather than its fair share (e.g. the Senate representation and taxing power of a state). The "commuter tax" is a long end of the stick, because the Distict has a large employer that will not move in response to economic signals (such as taxing its workers) and that inherently has hundreds of thousands of workers who will never move into the District (and thus could be taxed without a corresponding need to provide services).

Giving DC the taxing power of a state is unfair to the point of being politically infeasible, unless it is phased in over a very, very long period of time. The existing bedroom community land use patterns of Prince Georges county were established based on the existing tax regime, in which PG County residents largely fund the state services they consume through the income tax. A sudden 50% drop in state income tax receipts from the County would blow a hole in Maryland's budget, and be strongly resented by the rest of the state.

It's a good bet that state legislators would consider limiting the exisiting tax credit for state taxes paid to other jurisdictions. Why would Maryland agree to let a few hundred thousand residents stop paying state income tax because of where they work? Just because that is how the code treats a handful of people who work in Delaware does not mean that the state would aquiesce in extending that arrangement to the District. Perhaps a minimum tax (e.g. 2 or 3% of AGI) would be enacted, which would be met by people with lots of investment income anyway.

All of this is doable if phased in over a period of decades. In the end, Maryland could adjust the tax credit so that the revenue loss from commuters was balanced by revenue gain from District residents. Especially if the planned urbanization of Metro sites creates economic opportunity in Prince Georges County. At the margin, some Maryland residents who work in the District could either move into the District or get jobs in Maryland, and employers in the District could raise their wages to help attract suburban workers.

Rather than chase that pot of gold at the end of the rainbow, DC advocates should look at what is politically feasible. A tax to pay for the actual services that commuters help to consume (roads, police, fire) would be fair. While local representatives might vote against it, they would not be punished for allowing such a tax to be enacted.

Conversely, Representative Hoyer would probably give up his leadership post if that's what it took to stop giving DC the taxing power of a state. He'd lose his seat anyway if such a tax was ever enacted.

by JimT on Jul 30, 2012 9:56 am • link • report