Greater Greater Washington

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How much government waste really exists and is easy to cut?

In a surprise move, Mayor Gray vetoed a budget measure that spends some of DC's reserves to delay an upcoming bond tax. Gray wants some kind of income tax, like he had in his original budget. Kwame Brown insists he's opposed to that, and wants to create commission to study further cuts.


Photo by Ron J. AƱejo on Flickr.

This aversion to a very small income tax increase is silly. Many DC residents face smaller tax burdens than counterparts in Maryland and Virginia, and most importantly, people aren't going to suddenly flee the city because some income is taxed 0.4% more.

People live in DC because it's a great place to live, not because it's the cheapest place around. If the revenue helps keep our fiscal house strong and blunts desperate poverty that makes the city worse for everyone, it's a good tradeoff.

There definitely is some waste in the government. There is waste in all large organizations, though, even the best-run companies. If we can find some waste and cut it without cutting the useful functions, that's worthwhile. Is that possible?

First, a quick recap of the long saga: Gray's April budget proposal included a 0.4% tax increase on incomes over 200,000. Kwame Brown vowed to eliminate that, and swapped it out in favor of eliminating the tax exemption on out of state bonds, which no other state has.

The only reason the rest of the cuts-before-taxes councilmembers, like Mary Cheh and Jack Evans, agreed with the measure was because reinstating the exemption was on a list of priorities for spending future unanticipated revenue, at last some of which was indeed anticipated. But Tommy Wells wrangled an amendment to swap that item with restoring other cuts.

In any event, the next budget round had a bunch of spending pressures around Medicaid that pushed this item down the list. The replacement items aren't funded either, yet, and so the bond tax buyout still wouldn't have been had it stayed on the list.

Meanwhile, Mary Cheh said she would introduce an amendment to remove just the part of the bond tax for already-purchased bonds, and put back in an income tax, but only on incomes over $400,000. Yet she never introduced it, and instead passed a measure devoting some of DC's reserve funds to delay the bond tax by one year and make it non-retroactive.

Some councilmembers say she never really meant for the amendment to pass, and withdrew it after Mayor Gray whipped votes for it; she says it's because she feared Wells would round up support for some other change she didn't want.

What Gray vetoed was the bill that delays the bond tax. Now, if the Council doesn't act further, the bond exemption will go away even for already-purchased bonds, including on interest from 2011.

Kwame Brown still insists "people are tired of taxes and fees" even though a DCFPI poll found strong support for the original income tax increase.

Tim Craig writes,

Instead of a tax increase, Brown said he will probably push to establish a commission to explore potential cuts and savings to the city's budget. Brown said the commission would include government officials and citizens who will work to ferret out "wasteful spending within the government."
Say you were on that commission. How would you "ferret out" some waste?

It's become a familiar trope to say there must be waste. And there indeed is. But it's not so easy to just cut the waste, like most politicians pretend.

For one thing, some waste is an unfortunate byproduct of organizations. Even my former employer, Google, which constantly enjoys adulation from the press for being a great organization, has some people not pulling their weight. It's not a lot, sure, but even without obstacles to firing people, getting rid of anyone is difficult, unpleasant, and bad for team morale (especially because there's never unanimity about who the less productive people are).

In a private company, a lot of the waste is just hidden. That doesn't make it right, but the popular belief that anyone with half a brain could just take an axe to government spending easily is a little too facile.

On the other hand, there are indeed some clearer examples of people who aren't adding value to an organization. Most people I've spoken to in government agree and know who those people are; sometimes others share the same view, while sometimes the opinion varies from person to person.

Many agencies could benefit from strategic reductions in their staffing levels. Unfortunately, labor rules make it very difficult to eliminate people based on their performance. The standard procedure is a RIF (Reduction in Force), which has strict rules around removing the most junior people, or people based on their job category rather than their performance, and further rules requiring the agency to find new placements or rehire people if jobs open up.

As I've written before, I think it's detrimental to unions in the long run to stand against the general principle of merit-based firings. Better to push for least arbitrary process for evaluating employees, so that the firings are as fair as possible, rather than opposing the whole idea.

If the Council doesn't want to take this issue on, it may be very hard to find genuine opportunities to cut that haven't already happened. It's worth investigating. If Brown staffs his commission with thoughtful people who really are looking for good win-win solutions, it could come up with something. Though it's hard to have a lot of faith in Brown's ability to choose people on merit instead of for political reasons.

It would definitely not be helpful to have a Boehner-style commission that simply picks programs to axe. Most of the actual objectives the DC government pursues are worthwhile. If accomplishing them more efficiently is not really possible or not politically feasible because of labor issues, wholesale cuts are not the answer.

Such a commission also would not likely be able to find specific cuts between now and the beginning of the fiscal year in October. Brown may have to swallow the tax increase that most residents want, and then pursue longer-term efficiency gains for next year.

David Alpert is the Founder and Editor-in-Chief of Greater Greater Washington and Greater Greater Education. He worked as a Product Manager for Google for six years and has lived in the Boston, San Francisco, and New York metro areas in addition to Washington, DC. He loves the area which is, in many ways, greater than those others, and wants to see it become even greater. 

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DC pursues worthwhile objectives, it's just that the implementation can be very poor.

Residents want better services and they are willing to pay an increased tax in exchange. Quite a bit different from the assertion that residents "want" a tax increase.

And the data that suggests what residents do or do not want is rather flawed and contradictory anyhow. The data shows that people are skeptical about the quality of government services in this city but at the same time support a tax increase to pay for more government services. Does this make sense to anyone? It makes no sense to me.

Cuts or reforms in government services are always going to harm someone or something. It's inevitable. A smart task force will figure out how to trim government waste with the least amount of harm. And it doesn't necessarily require firing workers. It could involve, for instance, enforcing currently existing legislation that would remove a lot of ineligible people from receiving social services that were never meant for them in the first place.

by Scoot on Aug 4, 2011 2:07 pm • linkreport

Also, Suzanne Peck is already leading this type of effort in her One City Performance Review. So Brown would create a redundant waste-cutting commission. That sounds like...waste.

by Ken Archer on Aug 4, 2011 2:25 pm • linkreport

Of course there is waste in DC government. It's a large bureaucratic organization. That pretty much guarantees some level of waste.

The problem is that cutting waste actual tends to require money and staff time. And sometimes we can spend lots of money and resources on relatively small sources of waste.

Fighting waste very aggressively also means that at some point in time someone who is entitled to something is going to potentially denied it or hassled about it. Often this is very unpopular.

Like all public policy fighting waste is about choices and resource allocation.

by Kate W. on Aug 4, 2011 2:37 pm • linkreport

Who pays for the disgusting public housing projects in DC? Is it the federal government or DC? If it is DC, then I say cut back on this waste and make the suburban areas take up some of the slack for the area's poor . The number of workers in the DC govenment is way more than most cities this size have. The "state" excuse does not hold water, either. As far as I'm concerned, I am against Gray's tax increases- or any tax increases for DC residents as Gray has let up on services in parts of the city where the voters did not go for him last election. get rid of this Gray creep.
DC should have the LOWEST taxes in the region- and there is no reason to make DC any less attractive by raising taxes on those of us who live here. Sorry- but this is a no go.

by w on Aug 4, 2011 2:37 pm • linkreport

Across the board and there are always valid reasons to raise someone else's rate: they have the money, they make too much money, they consume the service, they're not working anyway.

Everyone's always willing to raise the tax rates on someone else. Very few people are willing to raise their own rates or, gasp, put their money where their mouth is and just overpay their taxes.

It's a merry go round and there's no consensus. However, to sit and argue that someone else is being silly for not paying more taxes, while not simultaneously offering more of their own money is hypocrisy.

I'd argue that we need a new "short timer" tax rate. Anyone who's lived in the city < 5 years needs to pay 2x the current rate. It's just as valid a statement as any other that's been made.

by ahk on Aug 4, 2011 2:41 pm • linkreport

It seems that in general, the city has gone backwards on many of the improvements of the past 10 -odd years- and for this alone- there should be no tax increases in DC at all. If it were Gabe Klein and Fenty running the show- and a special consumtion tax were to be levied- say to make sure we get ALL of the streetcar tracks built- then I'd think about it because I would know that it would be going to worthy cause that would help EVERYONE in DC. If it means Gray throwing money at a summer "youth" jobs program, for kids that are going to abuse the system or be abusive, or to programs for people who feel "entitled" to get benefits from the city year after year, decade after decade, and they persist in having multiple children out of weblock, and that kind of thing- I do not want to spend one dime on these people. The feel gooders out in Fairfax and Montgomery should step up to the plate and take in some of these hard luck cases. Why are we suddenly trying to get rid of one of the reasons why people are moving here to DC just when it is turning around a little bit? People move here BECAUSE it is a great deal especially with the low property taxes. Take that away and we will be just like Baltimore or Detroit.

by w on Aug 4, 2011 2:55 pm • linkreport

I don't make 350K so I guess I shouldn't care, but I am not for tax increases when I see over employment in the DC gov work force, uncollected tax revenues (re. Gandhi) and poor results from the school system.

Maybe if I had a lot more money I would want a tax increase. Mainly those polls cited show most people want you to tax other people.

My concern is once they start taxing they won't stop. especially when the proposed Gray tax increase will raise about 10 million. That will be spent and the proposed Micheal A. Brown on 250K+ earners. Then soon they will get to the middle class folks because unless they are going to extract 100K from each of the wealthy folks in DC it doesn't add up to the $100s of millions the DC council has added to the budget in the past 7 years.

That said, it is about return on investment. If I had a good school in my neighborhood or lower crime maybe I wouldn't mind a modest tax increase.

by LeeinDC on Aug 4, 2011 3:04 pm • linkreport

During hard times government should have to cut back just like the private sector. There is so much waste in the DC government that I would be surprised if the budget couldn't be cut by 25-50% and still offer the same level of service. Taxes should be cut not increased.

by Jim on Aug 4, 2011 3:22 pm • linkreport

Jim: "Hard times" come about because spending drops, forcing businesses to lay off workers, who then have less to spend, which creates a self-reinforcing spiral.

It's during hard times that we need government to spend more. Without government spending to counter the lack of private spending, there would not be "hard times," there would be total economic collapse.

It's Econ 101.

Now, can you give us some examples of where you would cut 25 to 50 percent from just one agency, while still providing the same level of service? Making claims like that is fine, but you need to be able to back those assertions up with facts.

by Geoffrey Hatchard on Aug 4, 2011 3:25 pm • linkreport

1) DAl, DC gov't employees have union representation? Count me dumb on that one because I've lived here all this time and didn't know it. Not sure how I feel about that.

2) I assume Part of the reason why there's so much ire against gov't employers is that we're more likely to have "experiences" with gov't than we are in the private sector. I wish there were some kind of analysis done on the ease of firing in private vs. gov't. I don't believe the difference would be as staggering as the idea people have in their heads regarding the two sectors.

@W, Fenty and Klien just left office so there's no need to wonder "what would happen" only if they were around. Not sure what reason Klein as DDOT head would be pushing for a consumption tax but did Fenty do this? We began to experience even greater budget challenges under Fenty's watch, did we get that consumption tax to deal w/the problem?

You don't get to decide which portion of your tax dollars go towards anything..from schools to bike lanes. Understandably, we all have an opinion.

Lastly, is the article talking about increased property taxes or bond taxes? I can admit to not knowing that much about the latter, but can't understand why a bond tax would cause people to move away from the city. Isn't it a tax they're already supposed to pay but was proposed to be delayed? And DC is going to become Detroit over the bond tax?

Are you really comprehending what you're writing here?

by HogWash on Aug 4, 2011 3:41 pm • linkreport

The DCFPI "finding" that DC residents prefer a tax increase is like PETA "finding" that people don't like to eat meat. I deal with a lot of people in my day to day life, and none of them thought that raising DC's income taxes was the way forward. The only people who seem to think so are some young independantly wealthy blog runners and a bunch of feel-gooder GGW readers who "aren't" DC residents.

Let me tell you why. Because anyone who has been here longer than a few years has known the enormous amount of graft, theft and outright fiscal idiocy that this city has run under for the past ~25 years. Yes, I am including the "good ol years) of 1998-2007 when the city was running surpluses because just because the city was wining the lottery every year that covered up its disgusting waste, doesn't mean there wasn't waste there.

All raising taxes does to the District is allow the continue feeding of the beast. It's shoveling more good money after bad, down a hole with no bottom and there is no point.

It's made even worse by the fact that DC has added 20K well to do, educated residents with the matching taxable incomes and discretionary spending to match.

I could write pages and pages about each and every program and wasted millions associated with it, but I don't feel like it. Instead I will leave with this.

DC Budget(Local) 2000 = 2.8 billion
DC Budget(Local) 2009 = 5.7 billion

Increase of 103% in 9 budget years.

The budget has since fallen to 5.3 billion in 2011. Whooo aren't we spendthrift now that we cut our budget 7% in 2 years!!

A blind deaf mute donkey would have a hard time "NOT" finding tons of low hanging fruit in a budget that even after 2 years of cuts is still up 90% in 11 years.

You want more of my money? Fine...stop piling up the truck loads you are already given and doing nothing more productive with them than setting them on fire. Enough said...

I swear to the god I don't believe in, that being a tax paying true blue liberal resident of the District of Columbia nearly drives me to join the tea party sometimes.

by freely on Aug 4, 2011 3:48 pm • linkreport

Does anyone really believe that a tax hike would be used to help DC become more efficient or provide better services?

Of course not!

A tax hike will go to fund DC's extraordinarily generous social welfare programs that serve the region's poor and have a long history of mediocrity, fraud and inefficiency. And they will fund the myriad of social services providers that can't exist without taxpayer funding, yet provide no benchmarks of accomplishments.

And the latest idiocy by Gray on the budget exemplifies both his lack of leadership (and 11th hour pocket veto without telling one of your closest Council allies who's been sticking her neck out for you?!) and why DC is not business friendly (tax hikes are in; nope, they're out; nope, they're back in; nope they're out; nope, they're back in again & they're retroactive so you have no way to avoid them).

And I fully expect this site to promote the results of any purchased poll by a special interest group arguing that District residents are currently taxed enough as it is.

And did Kwame really say with a straight face that he wanted to set up a commission to investigate wasteful gov't spending?

cough*FULLY LOADED*cough

by Fritz on Aug 4, 2011 3:50 pm • linkreport

Can any of the long on answer but short on specifics people come up with line items that they feel should be cut? I agree that DC does not have a history of sound fiscal management. But calling for "better government" is a huckster politician promise, as evidence by who just did it today. What can we do, as a city to get better government, other than throwing the bums out.

I'm all for more cuts. As long as they don't hit the school budget, as my kids are in public schools. Or reduce the amount of cops on the streets. Or result in greater headways on Metro. Or, or, or. In the end, I'd rather pay a few bucks more in taxes than end up with less services I need. I can afford it, and I'm nowhere near the threshold for the income tax increase.

by Tim Krepp on Aug 4, 2011 3:58 pm • linkreport

@freely, bear in mind that those numbers are not indexed for inflation, nor are they compared with the size of the District economy. In 2000 dollars, the District's 2010 local budget was $4.6 billion, for a real increase of 64%. During that time, the District's economy grew an inflation-adjusted 77%. So, relative to the size of the economy, the District's government is actually smaller now than it was in 2000.

Not that this means there isn't plenty of waste -- there is -- but the headline numbers give a more spectacular picture than may really be the case.

(Calculations based upon and a 2000-2010 inflation rate of 25%. That latter is from an inflation calculator whose accuracy I cannot vouch for, alas.)

by cminus on Aug 4, 2011 4:36 pm • linkreport

Sorry, malformed link ate my other source for stats - the BEA.

by cminus on Aug 4, 2011 4:38 pm • linkreport

@ Tim Krepp - The Fair Budget Coalition put out a report with a number of specific reforms that could be made to eliminate government waste, while, in their view, strengthening social services. It's worth a read. And it of course focuses mostly on "the safety net" for the poor but does not even touch other potential sources for government waste in the DOT, MPD, DPW, ABRA, DOES, the Courts, OAG, EOM, TAG, DCTC etc -- possibly because social services for the poor are the most expensive.

http://fairbudget.org/2012/wp-content/uploads/2011/03/2010FairBudgetCoalition_report-March2011.pdf

by Scoot on Aug 4, 2011 4:38 pm • linkreport

"Many DC residents face smaller tax burdens than counterparts in Maryland and Virginia"

Can someone give me some hard data on this? I have too long heard the opposite - that the income taxes in DC are substantially higher than they are in VA or MD.

by EH on Aug 4, 2011 5:04 pm • linkreport

Here is a specific: Examine relief factors in agencies that operate facilities with fixed posts. The DC government runs a not-insignificant number of facilities and business lines that require employees to be present 24/7: The DC jail, St. Elizabeth's, group homes, fire stations, etc.

A relief factor is the number of employees required to fill a post. The relief factor is a function of the number of hours employees actually work over the course of a year.

If there is excessive leave used among staff, you either need a larger workforce or you need the workforce you have to work large amounts of overtime. In either case, it drives up personal service costs, which are the single largest cost in the government.

One other thing to consider: the fire department specifically. DC's fire fighters currently work a schedule of 24 hours on then 72 hours off. In many other jurisdictions, including several in the DC metropolitan area, firefighters work 24 hours on, then have 48 hours off. Changing schedules would lower the relief factor and decrease staffing costs.

Arguably, it's unfair to change fire fighters' schedules so substantially after they accepted the job under very different terms. I am sure many have organized their lives around a 24/72 schedule. A change in schedule would also require them to work more hours for the same pay, which, again, seems unfair. This latter problem (more hours for the same pay) could be addressed by using a portion of the savings from the schedule change to provide a base pay raise.

by Mark Jordan on Aug 4, 2011 5:07 pm • linkreport

I'm a DC government union employee. In our agency, only 15% of staff is unionized. We're under a 3 year salary freeze. We were furloughed this year. We couldn't buy anything for months at a time during the fiscal year due to temporary spending freezes (not even paper). My office within the agency lost 25% of our staff without replacement, but carry the same work load.

Cutting your way to a balanced budget works sometimes, not every year. Eventually there's nothing to cut.

by Anon on Aug 4, 2011 5:34 pm • linkreport

Why is there such an obsession with preserving the out-of-state municipal bond tax exemption?

That tax exemption is subsidizing other states' issuance of debt, because the exemption allows them to pay a lower rate of interest than they would if there were no tax exemption. Who pays that subsidy? DC taxpayers who don't buy those bonds--i.e., most people. That is, in order to pay that subsidy, which is a tax break for some, everybody else has to pay more taxes to make up for it.

And, on the other hand, there's not a huge gain to the bond holders. Yes, the bonds are tax free. But the return is lower. Paying 10% income tax on a bond that has a 10% lower return is a wash.

The bonds are exempt this year. Everyone with such bonds should prepare to sell them and buy something with a better return that's not tax free. You've been warned. Get on with it, and don't complain in 2011.

by ah on Aug 4, 2011 5:35 pm • linkreport

Most people want want three things from the government; less bureaucracy, more transparency, and less waste. While there are ways to maximize all three, to get these three things to the level most people want is impossible as they are mutually exclusive.

In order to reduce waste, you need more checks and balances and you have to follow rules exactly, hence more bureaucracy.

If you want more transparency, you need to hire more people to provide this info to the public, many people consider these staffing levels as waste.

If you have less bureaucracy, there are less checks which can lead to more waste and less transparency.

by nathaniel on Aug 4, 2011 6:37 pm • linkreport

Finding waste and fraud is what an Inspector General should be doing. Sure, the legislature budgets for programs and maybe a few of those are turkeys, but with 50% of the budget going out to entitlements (education & low-income), the juiciest fraud is probably lurking hidden in between the line items.

The DCFPI has an informative "What's in the final FY 2012 budget?".

by Turnip on Aug 4, 2011 8:31 pm • linkreport

@ah:

Income from non-DC muni bonds are NOT exempt this year, since Gray pocket vetoed the bill that WOULD have exempted them this year.

That's the entire debate: The total unfairness of jacking up taxes retroactively so that people cannot plan accordingly.

If you want to hike taxes to pay for more welfare, then do so PROSPECTIVELY so that people are on fair notice and can prepare accordingly. It's absolutely outrageous to do it retroactively, without ANY notice to bondholders and without allowing them to minimize the tax owed.

Put it this way, if CaBi jacked up the membership costs and did it retroactively to January 1, 2011, wouldn't people be highly outraged?

by Fritz on Aug 4, 2011 8:47 pm • linkreport

Exactly how is being hurt here? How many people have enough bond-income to even worry about this?

I strongly suspect nobody's in Brown or Grey's "base" is going to even know this debate is about...which is a great example of how debates gets twisted here.

by charlie on Aug 4, 2011 9:17 pm • linkreport

Great point.

There is waste, fraud, and abuse. But it's not a significant amount of money. (That doesn't mean we shouldn't make it less money, but this solves a different problem).

Instead of talking about dollars we're cutting from budgets, it's better to talk about what services we're cutting from budgets.

@ Fritz--

If you want to hike taxes to pay for more welfare, then do so PROSPECTIVELY so that people are on fair notice and can prepare accordingly. It's absolutely outrageous to do it retroactively, without ANY notice to bondholders and without allowing them to minimize the tax owed.

No, it isn't. Tax rates and taxable income changes all the time. That's the price we pay for having an elected body determine the tax code. Congress has played around with the estate tax, income tax rates, energy tax credits, and capital gains rates at the last minute just in the last 12 months!

More to the point, what wouldn't be fair would be to tax the interest earned in prior years. The DC Council isn't doing that. See Article I, Sections 9 & 10 for ex post facto laws. This certainly doesn't qualify.

by WRD on Aug 4, 2011 10:57 pm • linkreport

Let's play this game.

If you are a bond holder, are your responsible for estimated taxes due in April and July so far in 2011?

Exactly. No one affected by this legislation has any idea if they are in compliance or not.

I agree with Fritz. We talk about having communities that show diversity, including diversity of age. Yet this legislation tells retirees that the District is not a place where one should remain. Indeed, it is telling all taxpayers that any sort of arbitrary money grab is fair game by the government.

by William on Aug 4, 2011 11:39 pm • linkreport

@EH, OCFO's most recent comparison of combined tax burdens on sample area households is available here. In terms of taxes, DC actually does very well in the middle income ranges (50k-100k), and respectably at the top and bottom.

Of course, it's important to ask how much other spending is made unnecessary by those taxes, and the District usually gets the short end of that stick. The sample household at the 100k range would pay $1400 more in taxes if they lived in Montgomery instead of the District, but if that household had children, they would probably be fine with Montgomery's public school system but send their kids to private schools if they lived in DC, eating up all the tax savings and then some. There are some areas where DC can offer more bang for the tax dollar - transportation comes to mind, for reasons of geography if nothing else - but a lot of DC public services are just not as good.

@Tim Krepp: Excellent point; one person's waste is another person's pet program. Having had several years to see how the Summer Youth Employment Program works from the inside, I'd nominate the SYEP as ready for an 80-100% cut. But that program's base of support from people not me is legendary.

by cminus on Aug 5, 2011 6:55 am • linkreport

The guy who writes this website states, with more emotion than analysis: "This aversion to a very small income tax increase is silly. Many DC residents face smaller tax burdens than counterparts in Maryland and Virginia, and most importantly, people aren't going to suddenly flee the city because some income is taxed 0.4% more." A deceptive, unintelligent statement.

1. Only the lowest income tax brackets are about the same or lower than MD/VA. But as the author knows well but craftily buries, the middle and upper income brackets are substantially higher than VA or MD (inclusive of their county taxes), and they are the subject of the proposed tax increase. It is a pretty deceptive sentence.

2. DC has a very steep, progressive tax policy, capturing most of its income tax revenue from the higher income bracket. In this bracket, a 0.4% increase is not "very small," especially in that it steepens the progressive curve more.

3. One can feel emotionally or morally that middle class and affluent people should pay high taxes. But of course people make rational decisions based on their economic self-interest.

4. When a middle-class or affluent family is moving to DC (say, from NJ), they are already highly unlikely to chose a residence in DC due in large part to tax rates. Thousands of such new residents/buyers never even consider DC and they constantly point to the tax rates.

5. And then families/individuals already in VA or MD have a financial disencentive from moving to DC -- best to stay in Arlington, Bethesda, etc. Some single young professionals may move in, but as their income increases...see next point:

6. And then last, will another tax boost cause anyone to move out? All by itself, probably not. People don't pick up and move so quickly. But it is a cumulative effect -- the constant stacking of tax bricks on the middle/upper brackets, the misuse by DC of the tax revenue collected, a steep progressive spending policy mixed with political criticism when tax revenue is spent in affluent areas, the constant demonizing of the affluent -- add it all up, folks have and folks do move out ALL THE TIME. The typical scenario, which I have personally witnessed 20 or so times on my block alone: young couple moves in, has little kids, a good family income, dad or mom has more financial success (makes partner etc.), then when the kids are about 4 and school is coming, they move to MD or VA. Of course they do. Yet another .4% increase adds to the substantial incentive of DRIVING OUT this demographic. This demographic includes white & black. An AA couple with $400,000 in income and 2 kids makes the same rational decision as a white couple -- why would we pay 9% taxes for poor schools & government when we can pay 6% for excellent schools & government? Some chose to stay anyway, like us, out of a heart-felt love of the city, understanding the irrationality of the decision.

7. Bottom line -- certain commentators like the author basically keep pounding the mostly emotive point that rich people ought to pay more (emotive subtext: those bad rich white people), but the overall DC tax policy is already irrational, and ironically, reduces DC tax revenue and the amount of funds the City has to better itself and for its poor. The real answer is balance. There is no balance at present and the answer is not to make the policy even more imbalanced.

by DCresident2604 on Aug 5, 2011 8:58 am • linkreport

DCresident2604, there are three things you forgot to consider:

1. DC's income tax rates are indeed the highest locally, but its combined tax burden (including property, sales, and excise taxes) is actually pretty reasonable, per the link I provided to EH. Whether you get what you pay for is a different question (short answer: probably not, unless you're young and childless), but the problem with the cost/benefit ratio for DC taxation lies with the benefit side of the equation.
2. Yes, lots of people move out of DC when they have kids; indeed, I have lots of friends who have done exactly that over the past few years. But not a one of them complained about taxes; they cited the schools, and were right to do so. Fixing the schools is an entirely different challenge, and one with surprisingly little relationship to this discussion -- there are lots of problems with DCPS that can't be fixed with money.
3. I thought that the most recent ruling from the Legions o' Critics is that the GGW commentariat generally, and (noted local gazillionaire) David Alpert specifically, are bad rich white people trying to drive out poor black people, presumably as part of The Plan. The Legions o' Critics really should pick one line of criticism and stick with it.

by cminus on Aug 5, 2011 9:24 am • linkreport

"[M]ost importantly, people aren't going to suddenly flee the city because some income is taxed 0.4% more."

Is there data to support this, or is it just another Alpert conjecture?

This argument gets brought up again and again in the NYC Metro area, where residents ostensibly have a choice between living in New York, New Jersey, Connecticut, or (if they really love commuting) Pennsylvania.

Every time a tax hike/cut is proposed, this argument gets brought out, and when the taxes inevitably go up or down, there's never been a measurable population shift that cannot be explained by other, more obvious factors. Small tax increments have not been shown to drive migration or strongly influence real estate buying decisions.

Also, I've done the math on DC taxes, and definitely don't think that the "Taxes in DC are higher" argument holds much water when you look at the raw numbers. Yes, DC income taxes are higher, but many of our other taxes are much lower -- we have no car tax, lower property taxes, and a generous homestead deduction.

Also, if you look at the total cost of living, the ability to live in DC without a car tips the scales firmly in DC's favor. Education is the one thing that might tip the scales back to Virginia's favor -- NoVA's got some great public schools, and private schooling in DC is expensive (although it must be said that DCPS has begun performing well at the lower grade levels). In most of the analyses I've seen, Maryland's property taxes make it a more expensive place to live across the board if you happen to own a home.

Even if you're living in one of the higher income brackets, the extra tax you'd pay to live in DC is not a huge sum of money, and probably wouldn't be a dealbreaker for somebody making that kind of money.

Basically, what I'm saying is that DC has an image problem. People think that our taxes are higher, although this simply isn't true for many of us.

by andrew on Aug 5, 2011 9:36 am • linkreport

Adding some reality to the "Rich people won't move if they are taxed a little more" debate.

"Millionares Go Missing"
http://online.wsj.com/article/SB124329282377252471.html

by freely on Aug 5, 2011 9:46 am • linkreport

Adding some actual reality to the debate:

http://www.saveoursafetynet.com/content/closing-case-missing-millionaires

The WSJ analysis conveniently ignores the fact that many people's incomes dropped substantially at that time because of the stock market. Most millionaires have most of their income from investments, not salary, and the market plummeted, meaning they had large paper losses rather than capital gains.

David Rosen, chief budget officer for New Jersey’s nonpartisan Office of Legislative Services, told a Senate budget panel that no more than 2 percent of Maryland's millionaires left the state after the tax increase.

Even that possible number seems likely to be substantially higher than the real one. Of 2007's millionaire Marylanders, only 540 filed either part year or no return at all in 2008. Some of these individuals moved out of the state, but there is no evidence that their departure was a result of the tax change, as opposed to family, work, or other reasons.

Maryland did lose a lot of millionaires from the tax rolls. They stayed right in Maryland, and many even stayed millionaires, but stopped being million-AGI earners.

by David Alpert on Aug 5, 2011 9:52 am • linkreport

@Fritz - Fair enough for 2011. I wasn't aware the tax hit bondholders already this year.

That said, the thrust of most arguments is prospective application, not just for 2011.

by ah on Aug 5, 2011 10:03 am • linkreport

Breaking - Group of random DC residents who call themsevels "Save Our Safety Net" finds
no correlation to increasing taxes on the rich, and the rich leaving

It is about as shocking as the DCFPI coming out with a poll that says DC's rich want to be taxed more.

You respond to an analysis by Bloomberg and the WSJ with one random blogger with an agenda? C'mon Dave, that doesn't even pass the smell test.

I am sorry Dave, all I see in that blog article is subjective conjecture. Zero actual fact or data to back up their premise. The blogs writer says there has been a careful analysis that puts this so called rumor to bed. Ok, where is the analysis? Who did it, where are the numbers. He just says "not true".

For example:

"David Rosen, chief budget officer for New Jersey’s nonpartisan Office of Legislative Services, told a Senate budget panel that no more than 2 percent of Maryland's millionaires left the state after the tax increase."

One would wonder how a New Jersey CBO (who is also pushing fo rth knows more about whats going on in MD, than does the MD Assembly, but fine. Again I ask, where is Rosen's data, how did he come to that conclusion?

And another example:

"Of 2007's millionaire Marylanders, only 540 filed either part year or no return at all in 2008. Some of these individuals moved out of the state, but there is no evidence that their departure was a result of the tax change, as opposed to family, work, or other reasons."

Only 540 huh? Well, thats a whopping 18% of the millionares under question. And they say "no evidence". Ok, what data did you look at to say no evidence? This is all completely subjective.

Yes, the economy had somethign to do with it, as WSJ stated, but the stock indicies didn't take a dive until the last 3 months of the year and isn't soley to blame.

Lastly, one doesn't have to physically leave the state to stop being taxed there, they simply claim residency elsewhere, which for the well to do resident of Wards 2,3 who already own vacation homes outside of DC and spend months a year there as it is (Cleveland Park, Georgetown and Chevy Chase are virtually empty for the summer), isn't that difficult.

At the end of the day, I will take the financial analysis of Bloomberg and the WSJ over that of some random bloggers unsubstantiated and dataless claims who has an axe to grind and who is pushing to increase the tax on the rich in DC.

by freely on Aug 5, 2011 10:35 am • linkreport

You know what doesn't pass the smell test for me? The idea that someone who makes a million dollars a year is gonna up and jump ship because their tax burden went up a whopping $2,600.

by MLD on Aug 5, 2011 10:41 am • linkreport

Did they eviscerate it, or did they wander drunkenly into a bar and fire shots off at random?

by Neil Flanagan on Aug 5, 2011 11:06 am • linkreport

@DaveAlpert; actually, we measure millionaires by assets, not by income.

by charlie on Aug 5, 2011 11:16 am • linkreport

Yes, I promise that you can identify and intelligently eliminate waste in the DC government. In the Fenty administration, this was the job primarily of the City Administrator's office, where I worked until 2009 as budget director. In my experience, it helps to ask agencies (and encourage them to ask themselves) 'why do we do this.' Often there are good answers; sometimes the question has not been asked for years or decades. And sometimes the answer made no sense to me, but the juice of cutting was not worth the squeeze (usually measured in political pushback).

I also agree with the anonymous DC employee who wrote that sometimes there is nothing left to cut: at a certain point, you are left with options that will reduce services, shortchange employees, or both. The problem with cutting waste is that once you've done it (assuming you did it right), you can't do the same thing again--you have to search for new forms of waste and cut those. In this regard, waste cutting is iterative--and, neatly, so is annual budgeting. The repetitive aspect of the process allows for the time needed to put thoughtful options on the table. So when I hear about these task forces on waste, I wonder whether their proponents understand that as soon as their work is done, they must restart their work.

by Will Singer on Aug 5, 2011 11:23 am • linkreport

askuka: I have deleted several of your comments because they are attacking contributors and other commenters. Please confine your comments to discussing the issues, not belittling other people.

by David Alpert on Aug 5, 2011 11:24 am • linkreport

freely: First of all, the WSJ is not credible on taxes; they dogmatically oppose them all the time. Also, that article quotes the nonpartisan NJ budget officer. I'd take their opinion over some WSJ blog-like squib with a clear agenda any day.

But you can judge for yourself the merits of the facts. The fact is that the WSJ simply says that fewer people filed $1M+ AGI tax returns, and assumes that they moved away with absolutely no evidence about that.

And charlie, yes, millionaires are measured by assets. But the "millionaire's tax" is not actually taxing millionaires. It's taxing people with high AGIs. One can be a billionaire, invest entirely in stocks, lose money, and have zero AGI for a year.

Finally, freely, you are resorting to attacking me and others in your comments. I didn't delete your comment because you made a lot of factual though incorrect arguments as well. Please stop with the personal attacks or I will begin deleting your comments as well.

by David Alpert on Aug 5, 2011 11:29 am • linkreport

Yes, I promise that you can identify and intelligently eliminate waste in the DC government.

You can in any govt - proper budgeting and management is required. I do not see that occuring in DC with this cocouncil or this mayor.

I opposed raising my taxes, because I pay enough income taxes. I do not own a car or a house, so raise (or create) those taxes before you raise up any more income taxes or sales taxes.

Cut the waste - and eliminate some of these government giveaways.

Single childless people pay enough to live here. Thanks.

by greent on Aug 5, 2011 11:30 am • linkreport

Here's a place (or places) to cut wasteful spending: eliminate the identity group consituency offices under the Office of the Mayor, specifically, the offices for Asian/Pacific Islander, GLBT and Latino affairs. I know that mayors and council members love these offices, because they provide a source of political patronage and outreach. (One can imagine how Jim Graham would react if they were eliminated.) But these functions don't educate our kids, police our streets, fight fires or serve some other core function of local government. Cut them and use the funds more wisely some where else!

by Bob on Aug 5, 2011 11:43 am • linkreport

I'm confused as to why a WSJ editorial is any less biased then the DCFPI?

The WSJ is consistent in opposing tax hikes; DC FPI is consistent in supporting tax hikes. Yet the WSJ editorial is to be ignored b/c it's "dogmatic"? By the same token, DC FPI's similar - but opposite end of the spectrum - dogmatism should also disqualify it as a neutral observer.

I continue to be impressed with the DC FPI's paid-for poll. That was money very well spent by DC FPI since they can keep citing to it as definitive and the folks at the Chamber of Commerce haven't figured out they probably need their own paid-for poll to refute the supposed desire to hike taxes (or at least other people's taxes).

And some updates may be in order: Kwame tweeted yesterday that his "commission" won't really be a commission, but a group of interested people with ideas on how to eliminate waste. Which is basically what Suzanne Peck's secret group is already doing. So either Kwame is backtracking from his idea or it was never much of a developed idea to begin with.

And DC FPI has a blog post that, surprisingly, loves the Gray midnight pocket veto, but, buried in the posting, does acknowledge the retroactive bond tax's unfairness (as was it being announced at the first Council budget vote with no previous public discussion). But that's ok b/c the money is needed for more welfare programs. And they still support jacking the income tax on "millionaires" (which, due to some deflation, now apparently starts at those earning $350k), once again in order to fund welfare programs.

If dogmatism automatically negates the credibility of an argument, then BOTH the WSJ and DC FPI biased views must be ignored.

by Fritz on Aug 5, 2011 12:21 pm • linkreport

@Dave Alpert,

Really? Where did I attack you? What did I say that constitutes "attacking" you?

by freely on Aug 5, 2011 12:36 pm • linkreport

Fritz: Exactly my point. The WSJ has a point of view. DCFPI has a point of view. Just because the WSJ is a newspaper doesn't mean its editorial statements are truth while anything DCFPI writes should be ignored out of hand.

freely was saying that the WSJ is more credible versus "some random blogger" (who happens to be the NJ state budget official quoted by an advocacy organization). It shouldn't be totally ignored, but its claims need to be scrutinized, and in this case, the claims in its editorial don't stand up to examination because they just took a stat, that the # of people filing with >$1M AGI dropped, and assumed that people moved out of the state because that conclusion fit their preconceived concept.

by David Alpert on Aug 5, 2011 12:55 pm • linkreport

1. Everyone seems to be forgetting the Bloomberg connection. You can pick on the WSJ as much as someone can the DCFPI, but Bloomberg is widely regarded and they picked up the story and ran with it too.

2. The random blogger is Mark Pendle, ya know...from the Saveyoursafetynet. Not David Rosen, which brings me to my next point.

I wouldn't believe some NJ state budgeting officials so called expertise and knowledge into another states budget (MD), than I would over some state "budgeting official" in Wyoming telling me he understands DC tax/revenue numbers better than DC budgeting officials. What exactly makes this NJ CBO more knowledgabe about MD's fiscal situation than Bloomberg or WSJ?

And as I said before, you don't have to physically move from the state to avoid paying taxes there. The unimpeachable fact is that 1 year after passing the tax increase, 33% of the states millionares vanished from the tax rolls. That was either from physically moving, "virtually" moving, i.e. claiming residency elsewhere, in a second/vacation home or by loss of wealth (recession). Saveyoursafetynet claims the biggest reason was the recession, but it didn't eliminate 33% of the states millionares in 3 months.

Some NJ CBO and a DC non-profit saveyoursafetynet) think differently, but give zero basis by which they made that claim, or any data whatsoever to substantiate it. Feel free to poke as many holes in the WSJ and Bloomberg story as you like, but you have to show "something" that substantiates your claims.

Lastly Dave, you still didn't answer my question above. Where exactly did I attack you?

by freely on Aug 5, 2011 1:16 pm • linkreport

@Bob:

here's why the office of GLBT affairs and the MPD's GLLU is so important for this city:

http://www.washingtonblade.com/2011/08/05/5-lesbians-attacked-police-refuse-to-take-report/

Because without it, Gay, Lesbian and Transgender citizens get screwed by the city services.

by greent on Aug 5, 2011 2:29 pm • linkreport

@Freely, I had to read your posts a couple of times and don't see the attack either.

I don't think calling the article "subjective conjecture" amounts to an attack.

Now I'm back to being confused about what is and isn't acceptable here.

*sigh*

by HogWash on Aug 5, 2011 2:53 pm • linkreport

@greent--

I have news for you. The taxpayers are the ones getting screwed by city services, and it's only getting worse under the Old Gray May'r. If people don't feel like their city is providing a fair shake, then it's time to change their elected officials. The GLBT office and the other offices are pure political pork -- get rid of them.

by Bob on Aug 5, 2011 3:22 pm • linkreport

freely: I think I meant to put in the name of another commenter there who had been posting more direct attacks. However, your comments do still often verge on criticizing people directly, and the more you pepper them with the names of others as if you're talking to them instead of just saying something you believe about the subject, the more you push that envelope.

by David Alpert on Aug 5, 2011 5:58 pm • linkreport

@greent:
"here's why the office of GLBT affairs and the MPD's GLLU is so important for this city:

http://www.washingtonblade.com/2011/08/05/5-lesbians-attacked-police-refuse-to-take-report/

Because without it, Gay, Lesbian and Transgender citizens get screwed by the city services."

You unwittingly pointed out a great place to start making cuts: MPD. Their non-resident officers are often ignorant of the law, hostile to citizens, and absolutely unwilling to engage in any broken-windows policing.

Those guys are protected by a union as averse to promoting courtesy and work ethic as the ATU. While there are good cops out there, it's the lazy, surly ones who most people see every day.

Washington has more cops per capita than any large city in America, yet can't get a handle on quality of life crime. DC isn't getting the results that its (enormous) outlay for police should get.

by CP on Aug 5, 2011 8:30 pm • linkreport

These battles over tax bases and rates are getting sort of tiresome.

Mr. Alpert:

I suggest you (or someone) does a detailed, factual post that lays out (in graphical form?) the following:

1) Sources of revenue for DC, MD, VA, and the surrounding counties.

2) Tax rates and brackets for the above.

3) Outflows for the jurisdictions.

4) Major differences between tax base measurements.

Take a look at page 14 (Table 1-5) of the CBO publication for a possible example of how sources of revenue can be presented.

The purpose here is to set a base of facts around which changes to taxes can be judged. If we can't start from roughly the same place, we will be talking past each other.

by WRD on Aug 7, 2011 4:49 pm • linkreport

Number 4 above should be "expenditures" and not "outflows."

by WRD on Aug 7, 2011 5:09 pm • linkreport

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