Government
Taxes lowest for DC residents and car-free Virginians
Tax debates often involve arguments about how taxes compare in DC, Maryland, or Virginia. A new report from the DC Fiscal Policy Institute found DC's to be the lowest in most cases. Virginia residents without cars would also pay low levels of tax.
Images from DCFPI.
The study looked at a variety of hypothetical families in three income levels: renters earning $50,000 in annual income, and homeowners earning $100,000 or $200,000. For each case, it totals the likely income, property, and car taxes being paid for singles or married couples without children or with 2 children.
In almost all scenarios, DC's tax burden is the lowest. The major exception is single households making $200,000 without or with children, where taxes are lower in Virginia. For married couples, Virginia's taxes rise above DC's mostly due to the car tax.
A separate DC CFO analysis also studied homeowners earning $50,000, and also found lower taxes in DC than in Maryland and Virginia.
The report assumes each single person owns one car, as do the couples earning $50,000, while the couples of higher incomes own two cars. The car tax ranges from about $550 (in Fairfax) and $600 (in Arlington) for the households making $50,000, up to $1,960 (Fairfax) and $2,150 (Arlington) for the two-car families making $200,000.
That means car-free households would save around $500-2,000, making Virginia cheaper for several of the categories. However, anyone who moves to Virginia for the lower taxes only possible for car-free residents would have to move to the relatively few places in the state where it is feasible to live entirely without any car, even for occasional errands or weekend trips, or where Zipcar is very close by. Owning cheaper cars would also allow Virginia families to save money on taxes.
Naturally, this just compares average households of these sizes. Each individual's tax burden will vary. Living in a less expensive home means lower property taxes, for example. However, that assumes someone can find a less expensive house they are willing to live in.
Property taxes are highest in Prince George's County, even though average home values are lower there. This analysis assumes lower house prices for its hypothetical families in Prince George's County, with the most expensive homes belonging to DC and Arlington residents.
Nevertheless, DC residents pay lower property taxes due to a far lower tax rate and the homestead deduction for those who live in their property. Prince George's, on the other hand, has the highest property tax rate in the region, and with home prices having declined more than elsewhere, many owners are paying taxes on valuations above their actual home price.
The report didn't consider sales taxes, because those vary greatly based on what people buy and where. The Virginia sales tax is one percent lower, but Virginia taxes groceries, while the others don't. Also, many DC residents shop in the suburbs for certain items and many Maryland and Virginia residents buy things in DC.
In tax debates, opponents of raising taxes often claim that wealthy residents will move to Maryland or Virginia to save money. The report doesn't look at much wealthier households, though studies from a recent tax hike in New Jersey suggest that very few rich people move to avoid taxes.
In moderate to upper-income households, moving to Maryland would not save money; moving to Virginia might if the households are willing to live without cars or with very cheap ones.
 | 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.   |
Comments
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For folks who've started working on their 2010 taxes, I'm not sure they'd agree.
Of course, there's nothing stopping those folks who feel undertaxed from contributing more money to DC's coffers by simply writing a check out to the DC Treasurer.
by Fritz on Feb 22, 2011 1:08 pm • link • report
by David Alpert on Feb 22, 2011 1:14 pm • link • report
The DC Chamber of Commerce argues we're super high taxed.
Ed Lazere's group says we're super low taxed.
How about you ask the Chamber to rebut Lazere, since at least you'd have a battle of statistician-activists?
Because, quite frankly, unless one has a tax LLM or is an accountant, it's hard to know which special interest group is playing around with the numbers to get the press release headline they're pre-written.
by Fritz on Feb 22, 2011 1:21 pm • link • report
by Ben Ross on Feb 22, 2011 1:26 pm • link • report
by charlie on Feb 22, 2011 1:26 pm • link • report
This is what the argument sounds like to me: "Group A says the sky is green. Group B says it's blue. Group B included a spectral analysis graph that demonstrates blue-ness. But I won't believe it! Group B has a blue bias—we already know that's their favorite color! Instead of publishing the chart, ask Group A to provide their own spectral analysis!"
The DC CFO's analysis generally matches DCFPI's. If the Chamber, or Evans, or whoever, wants to come up with their own analysis, I'd love to run it here.
by David Alpert on Feb 22, 2011 1:41 pm • link • report
by Lance on Feb 22, 2011 1:48 pm • link • report
by Local on Feb 22, 2011 1:49 pm • link • report
I didn't read report, just looked at these histograms and concluded PG is over taxed.
by Tina on Feb 22, 2011 1:56 pm • link • report
by David Alpert on Feb 22, 2011 1:56 pm • link • report
Hopefully he won't. The report is right or wrong regardless of the Chamber's stance on it.
I think this write-up misses much of the point about taxes in general.
Those of us who don't like taxes don't dislike them just because it's fun to hate on taxes. We dislike them because they distort economic incentives and therefore cause economic damage. But in many ways, taxes are great things. They fund positive government intervention and services we all like.
So the question becomes: how do we raise a given amount of money in a manner that does the least damage?
Since economists think at the margin, a proper study should look at marginal tax rates first and average rates second. In general, income taxes are the worst because they tax productive activity at the margin. So a state like Maryland scores poorly on individual tax measures because we have a high marginal rate. Maryland also scores poorly because we have a ton of brackets, which are also bad because they affect decisions at the margin.
This report does something low tax activists don't: it looks at average tax rates. This is a valuable thing! We want to raise average rates while keeping marginal rates low. Or, actually, we need to do this even though we don't want to, if we are going to pay the costs of government.
At the local level, there are many things a government can do to raise money efficiently. Broaden the base and lower the rate (taxing everything at 1% is better than having a 5% rate and exempting some things). Use consumption taxes rather than income taxes (sales, gasoline taxes are "good" taxes, generally).
We should get rid of all these credits and deductions designed to promote certain activity, too. Film credits, R&D credits, "business activity" credits, etc. should all go. The Chamber of Commerce (and even the MD Chamber) loves these but they're bad nonetheless. We should use the savings to lower tax rates.
Finally an income tax should be easy to administer and should have a low rate with few brackets. Use personal and dependent exemptions to help the poor. Don't use ridiculous brackets like Maryland does.
The Tax Foundation has a great resource on the principles of good taxation and report on State and Local Taxes that is just wonderful. I want to emphasize I link here because The Tax Foundation has good presentation and a reasonable reputation. Even more liberal organizations like the Tax Policy Center, or more conservative ones like AEI would almost certainly agree with the principles. Maybe not the solutions, but the principles. In fact, pretty much everyone having to do with taxation agrees with these principles. Grover Norquist aside.
An Iowa CPA blog also has some great examples of great ways to make Iowa's tax base better. Some items are specific to Iowa, but most of them are generalizable to our situation.
In conclusion, this report doesn't settle the issues and shouldn't be used as evidence that we are over OR under taxed.
by WRD on Feb 22, 2011 2:01 pm • link • report
by Civic on Feb 22, 2011 2:01 pm • link • report
by Lance on Feb 22, 2011 2:04 pm • link • report
The Chamber of Commerce represent businesses, which are highly taxed in the District of Columbia. I think a comparison of corporate property and income tax rates would show that the Chamber is correct at least when it comes to businesses, not residents.
by Adam L on Feb 22, 2011 2:04 pm • link • report
To get to the number in the chart, the tax payer would have to deduct $15,000 from their income. Sure that's possible but not likely, and even in that case the Virginia Tax burden is still equivalent (if driving an Audi) or less (if driving any reasonable car for an income of $35,000 after retirement savings).
by Paul on Feb 22, 2011 2:12 pm • link • report
Lots of renters make more than $50,000.
I'd like to see a number there. Think of a dual income, young couple, no kids, who are renting. Maybe $150,000 in total income? Certainly not rare in this area.
Captcha: students norentr (hah!)
by DCArea2 on Feb 22, 2011 2:12 pm • link • report
That being said, it's no reason to dismiss it out of hand, and it is interesting data. While I wish an organization with a little more credibility did the comparison, as opposed to one that feels I'm perpetually under-taxed, this is who we have.
by TimK on Feb 22, 2011 2:12 pm • link • report
For example, the 10% property tax assessment cap is lifted when property changes hands. When the house is assessed at full value less homestead deduction, the new owner will pay $3676. . .$1000 more per year. The assessment cap leads to large inequities in property tax bills based not on financial need, but on tenure in the property. On my block, you have residents in similar houses with similar income who pay widely divergent property tax bills based on whether they last moved in 2000 or 2009.
I think the inequities caused by the property tax assessment cap should be addressed before considering higher tax rates on income or property.
by CR on Feb 22, 2011 2:17 pm • link • report
To do a quick calculation, I took the married, no children, $200,000 income numbers and subtracted out the property tax.
I also shrank the federal offset by the relative ratio of the property tax to income tax (i.e. if the income tax is 75% of the tax burden and the property tax 25%, then I shrank the federal offset to 75% of its value to roughly account for deducting 25% less).
Here are the numbers:
Even without the property taxes (rightmost column),, the DC total tax burden. This might not account for everything, but it doesn't seem that higher-income renters are an exception.
However, the car tax is larger than the difference between DC and VA here (as with the homeowners), so if these Virginians have no cars or cheap cars then their taxes are probably indeed lower (as with the homeowners).
by David Alpert on Feb 22, 2011 2:24 pm • link • report
by Lizi on Feb 22, 2011 2:30 pm • link • report
1. They assume that people in VA own very late model expensive cards, maximizing the amount of car tax.
2. They assume someone in VA will live in a house just as expensive as DC resident does – ignoring the very real difference in price between a similar sized houses in say Fairfax and NW DC.
3. The ‘random’ selection of properties they use to determine DC taxes are heavily weighted on home that are assessed for taxes much, much lower that their cost. (this is due to the tax cap)
4. They ignore renters with high incomes.
5. How many household in the DC area with income of 100K have a 500K home? This choice of house price is made to inflate the VA taxes and deflate the DC taxes.
by Bruce on Feb 22, 2011 2:35 pm • link • report
Given the number of anecdotes where "wealthy" people purchase private schooling in the District but don't in Arlington, Fairfax, or Montgomery Counties perhaps its cost should be included for families.
by Geof Gee on Feb 22, 2011 2:36 pm • link • report
by S.A.M. on Feb 22, 2011 2:41 pm • link • report
by jim on Feb 22, 2011 2:44 pm • link • report
by Tina on Feb 22, 2011 2:49 pm • link • report
This is all complicated by Fed/State Alternative Minimum Tax. Remember, you lose all SALT deductions in the Federal AMT. I'm not sure how MD's AMT works, but it's not nice. That's a big issue for people with AGI above $112,500 single and $150,000 MFJ.
Suffice it to say, back-of-the-envelope calculations should not be relied upon when examining issues like this.
by WRD on Feb 22, 2011 2:53 pm • link • report
by eb on Feb 22, 2011 3:00 pm • link • report
But then you'd have to similarly reduce costs for the very large number of people in the District for whom the school system pays to send their children to private schools in Maryland or Viriginia. (There was an article in the Post some years back on how easy it is to get your child labled 'special needs' and therefore qualify them for DC paid tuition at any number of private schools. From what I read recently, we're spending almost as much on this as we are on funding our own schools. And this credit largely goes to middle and upper income residents.)
by Lance on Feb 22, 2011 3:07 pm • link • report
If you're a DC Resident with a HS aged child, you're way into the loss column. Pick a random private high school and you add $15k per year to your expenditures (Unless you live in the Wilson HS part of town).
So no, DC residents are not "getting a deal".
by eb on Feb 22, 2011 3:10 pm • link • report
by William on Feb 22, 2011 3:31 pm • link • report
Having just done my taxes this weekend, i fit the spec almost perfectly. Our household (married, no kids) makes about $100K and our house is worth about $500K (actually assessed at a bit more).
I actually owe less to DC than estimated in this report.
J
by j on Feb 22, 2011 3:36 pm • link • report
1. Eb and Lance are right: Any calculation for DC has to add the cost of private schooling, unless your kid can qualify as special needs.
2. Houses in DC are actually cheaper than *comparable* houses in most of Arlington and certainly than in the nicer parts of Alexandria. Take a look via Redfin, and you'll see that for house of the same size, age, etc., DC's cost less.
3. Income tax is really where DC residents get hosed. VA income tax is super low.
4. The state of VA pays residents to offset any car tax imposed by a County. If your car is cheap enough, you end up paying nothing.
by JB on Feb 22, 2011 3:41 pm • link • report
I've heard it here (and elsewhere) many times before, but no, you can get a perfectly fine education at DCPS. Not at all schools, and my kids haven't braved the middle schools and high schools yet, but I've been very pleased with both my kid's elementary schools and the options my neighbors have chosen.
I'm certainly not going to argue that their aren't problems, and concerted effort needs to be continued, but my daughter is getting a very good education with a DC Public School.
by TimK on Feb 22, 2011 3:53 pm • link • report
by SJE on Feb 22, 2011 3:55 pm • link • report
by JB on Feb 22, 2011 4:01 pm • link • report
But you've got two things going on: car tax and the vehicle decal (+fee).
For Dave's yuppie couple paying $2000 a year, after a year or two the county WILL go after you.
For the rest of us, who might owe $50 + the fee, they tend to ignore it. Not worth collecting and easier to collect it when you get a parking ticket for no decal.
And just so you don't feel sorry for people with old cars, we are talking something like a 2005 BMW or Audi that is essentially tax free. Virginia makes a lot of high end car sales, both through sales taxes and the vehicle tax.
by charlie on Feb 22, 2011 4:19 pm • link • report
I'm certainly not going to dump my kids into a bad experience to prove a point. Haven't done that so far, won't when the time comes. But the automatic assumption that it's bad parenting to send your kids to DCPS is insulting to those of us who do.
by TimK on Feb 22, 2011 4:20 pm • link • report
by SVD on Feb 22, 2011 4:24 pm • link • report
If you don't have kids, then the quality of schools is completely irrelevant.
At the same time, the average commute is almost certainly substantially shorter for DC residents, since you have better public transit access or maybe a reverse commute. This is the primary reason that I live in DC: I can be anywhere inside the beltway in under a half-hour, and lots of places even further out. I've never had a commute longer than a half hour in my entire life in DC, and I've worked in Herndon, Rockville, and other unfortunate places.
Similarly, you likely spend much less time in your car, even not counting commuting. I place a very high value on being able to live much of my life without having to drive (except to work, which takes 15 minutes, and I don't even have to do that, except it's a lot faster).
The point is, singling out "good schools" as a benefit of not living in DC isn't reasonable unless you want to place a value on all the reasons people DO live in DC. Even if you have to send kids to private school, many people place a very high value on free time. Even a half-hour a day not spent commuting - and the difference could be much more for many people - is a big percentage of most people's free time during the week.
by Jamie on Feb 22, 2011 4:28 pm • link • report
by Bossi on Feb 22, 2011 4:44 pm • link • report
Ever since a month or two into my older daughter's first year of pre-K I've felt that I've gotten a very good return on my DC taxes.
(Added bonus: the DC TAG program pays a big chunk of the state university's tuition.)
by davidj on Feb 22, 2011 4:51 pm • link • report
by parent of little one on Feb 22, 2011 5:04 pm • link • report
by oboe on Feb 22, 2011 5:09 pm • link • report
With Rhee's departure, the hope that many had that DCPS might turn around has been lost. Once you add back the inevitable private school tuition fees and related transportion costs, the DC tax "savings" are more than eaten up by other expenses.
by Mozart on Feb 22, 2011 5:26 pm • link • report
Along the lines of Bossi's point, in the 11 years I've lived in DC, I don't believe I've ever lost power (knocking wood). Maybe once a long time ago, but definitely not in the 6 years I've lived in Columbia Heights.
by dcd on Feb 22, 2011 5:32 pm • link • report
By almost every objective, by almost every rating agency in the country, DC metro suburban schools are some of the best in the country, and DC City schools are the worst or second to worst. I know very fine kids who got through DCPS schools, but you either have to win the student lottery or be a Wilson kid to have the school's reputation not hinder your chance at advancement. We all know good parents make good students, but bad schools make average students worse. If we're categorizing by "County" (or city) you have to look at DCPS as a whole and that means including all the forgotten kids going to Spingarn and Dunbar and the schools in Anacostia that still have abysmal graduation rates with watered down curricula. And no one really cares how good an elementary school is do they (As long as they're not running around with scissors)?
I would argue that there's NO point in looking at RAW TAXATION numbers. They don't really represent anything other than remaining purchasing power. The only reason to look at them is to make hallow headed pronouncements on whether this or that tax is too high or too low. Somehow, the "what are we getting for our money" question is lost. I'd argue that Virginia gets the best value for their tax dollar, and Maryland gets the best quality. DC taxpayers just get the shaft. They get virtually nothing but cronyism for their money.
So if the DCFPI wants to argue that more taxes are fair because we have a lower tax burden, I'd counter that throwing good money after bad doesn't justify parity.
Until we see real civil service, procurement and construction reform, there will not be a strong argument that DC needs more money.
by eb on Feb 22, 2011 5:36 pm • link • report
It's as clear as day to anyone who deals with PEPCO at the PUC level.
by eb on Feb 22, 2011 5:41 pm • link • report
You can buy a 3 bedroom townhouse in DC of roughly the same configuration for anywhere from $100,000 to $1.5 million, maybe more. The services that you receive from living in either of those will be roughly the same. Why is one worth fifteen times as much as the other?
Where, physically, you live is by far the most important consideration in how much "value" you get. The taxes you pay and the services you get may be more or less important to you, and have more or less weight in your overall value proposition, depending on your income and which services you actually might use.
Yes, DC has many problems, but obviously, a lot of people choose to live there. If they felt that, overall, they were getting the shaft compared to VA or MD, I would imagine they'd leave.
Yeah - you're right - there's no point in looking at raw taxation numbers. Just as there's no point in trying to determine who's getting a better deal than whoever else. It all depends on what you put value in. If you place a very high value on not spending time in your car and living an urban lifestyle, then there are few places outside DC that could compare well for overall value compared to what you pay in taxes. If the most important thing to you is a public school education for your kids, then DC will generally not compare favorably.
by Jamie on Feb 22, 2011 5:47 pm • link • report
By almost every objective, by almost every rating agency in the country, DC metro suburban schools are some of the best in the country, and DC City schools are the worst or second to worst. I know very fine kids who got through DCPS schools, but you either have to win the student lottery or be a Wilson kid to have the school's reputation not hinder your chance at advancement.
Don't take this the wrong way, but it doesn't sound like you know very much about the public school system in DC. (DCPS and charters). There are quite a few very good elementary school options. There are several very good high school options. Middle school is problematic, but so what? Seven years ago, there were nowhere near the number of elementary school choices in DCPS.
As you say, DCPS schools as a whole are bad, especially when compared to schools in Fairfax or MoCo. But you're not sending your kid to DCPS schools as a whole. You're sending them to a given school.
by oboe on Feb 22, 2011 5:52 pm • link • report
I'd be surprised if somebody earning $50k *didn't* have $15k worth of federal taxes, healthcare costs, 401k deductions, plus the $4k standard deduction.
In other words, for the purposes of state taxation, a $50k earner is only "making" $35k/year.
(On the other hand, can we talk about how much it sucks to be a single renter for the purposes of federal taxes? Discrimination, I tell you!!!)
by andrew on Feb 22, 2011 5:59 pm • link • report
My electrical wire are above-ground in my alleyway, and I believe most DC residents share a similar situation. I suspect the fact that feeder cables are buried helps a *ton,* but the "last mile" parts are mostly aboveground.
In a lot of ways, this is a very reasonable compromise that maximizes reliability while keepings costs under control.
That said, the wiring in my alley looks like something out of the third world. It's amazing that it works at all.
by andrew on Feb 22, 2011 6:04 pm • link • report
by andrew on Feb 22, 2011 6:05 pm • link • report
The next question is whether we get value for our money.
by JustMe on Feb 22, 2011 6:31 pm • link • report
by David Alpert on Feb 22, 2011 6:48 pm • link • report
@Alpert: I'm sure the Chamber of Commerce does more than just assert that taxes are too high in DC. Why not reach out to Barbara Lang and her minions and see if they'd like to rebut Ed Lazere's spin?
And there is not a single person that can read a piece of "analysis" by the Fiscal Policy Institute without a huge grain of salt. A decade ago, when the economy was super hot, Ed Lazere & Co. were arguing we needed higher DC taxes to compensate for the fact that a number of DC residents were watching one of the greatest economic booms in history pass them by. Fast forward to today, and you have Ed Lazare & Co. arguing that we need higher DC taxes to compensate for the fact that a number of DC residents are suffering from the recession. No matter the general economic conditions, Ed Lazere & Co. advocate for the same result: Higher taxes. They're simply a typical liberal tax & spend special interest group, and they should be identified as such by news organizations.
And given that I just finished up paying my taxes and seeing how much I pay to DC in income and property taxes, I'm quite happy with my current amounts and don't want to pay more. Ed Lazere, Michael Brown, Tommy Wells, Jim Graham, etc. are all perfectly free to cut additional checks each year, month or week to the DC Treasurer if they feel they're being undertaxed. They just need to keep their hands out of my pockets because they don't know how to spend taxpayer money in a wise and sustainable manner with the never-ending government spending mandates they enact into law.
The issue, in my view, isn't that DC taxpayers aren't taxed too little. It's that DC government doesn't know how to spend the money in any sort of sensible manner b/c we have a collective batch of fiscal incompetents on the City Council.
by Fritz on Feb 22, 2011 6:53 pm • link • report
You're still welcome to reach your own conclusions about who's right, based on the facts. But if you won't do that, and are going to make deductions from who says what, isn't it a reasonable deduction that the Chamber (who certainly can afford to do an analysis if they want to - I venture to say that big business has more money than the low-income folks) didn't answer because they didn't have a good answer?
by Ben Ross on Feb 22, 2011 7:52 pm • link • report
I mean, most people, rich and poor, base their home location on three things:
-Commute
-Education level (quality of schools)
-Crime/safety
It follows that areas with higher taxes have better schools and less crime (more police).
So dont people flock to higher tax areas?
I think most families would agree that $500 extra in taxes is worth the education and safety of their precious children.
by JJJJJ on Feb 22, 2011 8:08 pm • link • report
You are mistakenly using the word "we" when what you really mean is "I".
For example, "We want to raise average rates while keeping marginal rates low," should really be "I want to raise average rates while keeping marginal rates low."
Broaden the base and lower the rate (taxing everything at 1% is better than having a 5% rate and exempting some things). Use consumption taxes rather than income taxes (sales, gasoline taxes are "good" taxes, generally).
This is standard Tax Foundation policy. Broaden the base and lower the rate is their mantra. But that doesn't mean it is right. Sales taxes are regressive and unfairly hurt the poor. Income taxes are progressive.
Also, I like that we tax things like cigarettes at a higher rate than broccoli. I like that we tax gasoline at a higher rate than Amtrak tickets. I think some types of income should be taxed lower than other types. In other words I like a smart, nuanced tax system instead of a dumb flat one.
That the Tax Foundation is bought and paid for by Koch Industries and their crazy, secretive right wing ways doesn't bode well for their research. And they aren't a reliable source of information.
Frankly, you make a lot of claims about what is good and what is bad without defining good or bad or what the goals are. If you want to let the rich keep more of their money then your plan is good. If you want a tax system that achieves other goals then it is bad. You probably think social engineering through tax policy is wrong. I don't. And I think you oversell the Tax Foundation - and how they're regarded - in general.
by David C on Feb 22, 2011 9:05 pm • link • report
If you'd like to discuss this further, you can email me at gsjcmj (at) yahoo (dot) com.
by davidj on Feb 22, 2011 9:16 pm • link • report
Fundamentally, and getting back to the main thrust of this post, this discussion is about the relative tax burdens we bear as residents of different areas in the Washington region. As we've seen, that's a difficult comparison, but factoring in just one service (schools) but not others (transportation, crime, whatever) is disingenuous.
by TimK on Feb 22, 2011 9:25 pm • link • report
1. They assume that people in VA own very late model expensive cards, maximizing the amount of car tax. **car models, years, and values were taken directly from the most recent DC CFO tax comparison report** (p14)
2. They assume someone in VA will live in a house just as expensive as DC resident does – ignoring the very real difference in price between a similar sized houses in say Fairfax and NW DC. **there actually are price differentials factored in, based on ACS data by income group** (p13)
3. The ‘random’ selection of properties they use to determine DC taxes are heavily weighted on home that are assessed for taxes much, much lower that their cost. (this is due to the tax cap) **this seems a strange thing to question. i don't think even jack evans accuses this group of cooking the books. plus, the universal homestead deduction does decrease assessment value for everybody in dc-- not to even mention the tax cap, which affects homeowners more the longer they own a home**
4. They ignore renters with high incomes. **is it unreasonable to assume that the average resident earning $100 and $200 owns a home rather than renting?**
5. How many household in the DC area with income of 100K have a 500K home? This choice of house price is made to inflate the VA taxes and deflate the DC taxes. **this is the same point as #2 above. the choice of house price was made using Census ACS data by neighborhood group**
by BP on Feb 22, 2011 11:05 pm • link • report
That's a lot of assumptions.
Which is why I think it would be quite enlightening to invite the Chamber or other non-tax hike KoolAid-drinking folks to participate on this blog and offer a rebuttal of the argument that we're not taxed anywhere near enough.
And given the idiocy with Kwame and his Navigators, Gray and his nepotism hires at astounding pay levels, and Jim Graham's unhappiness with his Lady Gaga luxury seats at the Verizon Center, is there really any doubt that this city's problem is a SPENDING issue, not a revenue issue?
by Fritz on Feb 23, 2011 6:48 am • link • report
by MK on Feb 23, 2011 8:12 am • link • report
There's no surprise I agree with David C's assessment of the Tax Foundation--which may have had some credibility back in the mists of the Past, but has long since been assimilated by the crazies. But I just wanted to point to this...
And there is not a single person that can read a piece of "analysis" by the Fiscal Policy Institute without a huge grain of salt.
...which means the opposite of what you intended. The reason you take things "with a grain of salt" is that they're insubstantial, trifling, in short, beneath consideration. If you need a "huge grain of salt" to season them, that means they're weighty, substantial, extremely relevant.
It begs the question: are Americans over-salting our red herrings?
by oboe on Feb 23, 2011 9:15 am • link • report
In Connecticut, where I use to live, the taxes on similarly assessed house would be $3,000 to $4,000, depending on the tax rate of the community.
There is also a car tax in Connecticut (everyone really, truly dearly hates the car tax) and an income tax, although the income tax is at a lower rate than DC.
But the bottom line about property taxes and DC: My overall tax burden in DC is way less than what I paid in Connecticut.
by taxesarelow on Feb 23, 2011 9:23 am • link • report
Yes, when I said "we" I should have said "I." What I was trying to say was "those of use who think like me." Sometimes there are a few voices up here.
Anyway, a one-line from Krugman is certainly not dispositive. And if you want a more liberal source, I suggest the Urban Institute-Brookins Institute joint program called The Tax Policy Center.
Broad base, lower rate is mantra amongst tax policy guys. Pretty much everyone. Practitioners, economists, rate-payers, everybody. What this means is the "smart" system you want should be done in an efficient manner. Income taxes are progressive, but why not have a flat sales tax plus a negative income tax to offset the regression of the sales tax? In fact, many liberals would love that.
Also, I like that we tax things like cigarettes at a higher rate than broccoli. I like that we tax gasoline at a higher rate than Amtrak tickets. I think some types of income should be taxed lower than other types. In other words I like a smart, nuanced tax system instead of a dumb flat one.
You're saying you like Pigovian Taxes? Like, to pick a name at random, N. Gregory Mankiw, the very same one that Krugman criticized in your link.
As I said, a wide spectrum of tax experts will agree on those Tax Foundation principles. We wade into dangerous territory when we use the tax code to do things we "like." It should be done carefully. The liberal economists will generally want to address inequality in other ways.
by WRD on Feb 23, 2011 10:53 am • link • report
If everyone agreed with your principles, then someone would have instituted them. But no one has. No one has a perfectly flat tax system. No one has a totally consumption based tax system. No one has a flat sales tax with a negative income tax. Replacing US income taxes with a sales tax would require a tax rate of something like 30-45%. Are you telling me that wouldn't send people across the border to shop.
The tax policy center, btw, does not love your consumption based tax system.
"Under a national retail sales tax, the wealthiest households in the country would receive stunningly large tax cuts. Households in the top 1 percent of the income distribution have an average income of about $475,000. Their average tax cut would be $79,000, or more than the incomes of all but about 8 percent of households. Put another way, the roughly 1.1 million taxpayers in this top 1 percent would save a total of $87 billion on their taxes each year. This cut would be financed by tax increases on the bottom 92 percent of households. Households with income between $5,000 and $50,000 would face an average tax increase of over $1,000."
And
"A number of analysts have constructed models capable of generating realistic estimates of the impact of fundamental tax reform on growth. The most complete model, developed by David Altig and colleagues, shows the effects of moving from the current system to a flat-rate consumption tax. Their analysis of such a reform, which assumes a less generous demogrant than proposed by national retail sales tax advocates, transition relief for existing assets, and no avoidance or evasion of the new tax, finds that the economy would be 0.6 percent larger than otherwise after two years, 1.8 percent larger after ten years, and 3.6 percent larger in the very long run. Plausible allowances for avoidance, evasion, and the incorporation of a more generous demogrant would reduce these already modest estimates."
Meanwhile,
Evasion of such a tax would actually be quite high.
So, no thanks.
by David C on Feb 23, 2011 11:27 am • link • report
Recently I told my right-leaning neighbor who was complaining about high taxes that even if he lives in his house until he is 100 years old, he will never pay as much in property taxes as Arlington County spent on the 26 years of education it paid for his childrens' education. Police, fire, parks, courts, streets, etc. all essentially gravy for him. (And the same for me with my two children.)
Thus I do not complain about my property taxes. I do acknowledge that those without children and commercial property owners are subsidizing me. Thank you.
by Steve O on Feb 23, 2011 11:41 am • link • report
Do you know how the car tax in Connecticut came about? I find it curious that there is a car tax in Virginia (and Connecitcut) but not in DC. In DC the tax could actually effect people's transportation decisions, whereas in Virginia, unless you're living in or near a city, you are just going to pay the tax. It wouldn't generate much revenue in DC, but it would be preferable to some of the alternative tax increases that could take effect.
by DCster on Feb 23, 2011 1:04 pm • link • report
I'm not suggesting a national sales tax or VAT but reforms to the local ones that exist. You're right, TPC doesn't like replacing the income tax on a federal level with a sales tax, but that's also not at issue in our discussion here. SALT is a totally different animal entirely. There's a lot of stuff the Federal Government can get away with that a state can't. For what it's worth, I believe Federal marginal income rates should increase basically across the board. I also would not be opposed to higher brackets. But Federal taxation is very different than state and we shouldn't confuse the two.
No one has instituted a broader base, lower rate system on a federal level for 25 years (see The Tax Reform Act of 1986).
But it did happen then, and was unquestionably a good reform. States have done it on a smaller scale, and that's what we should do here.
Further more, I don't suggest a flat-rate income tax or flat-rate consumption tax. (Though a flat-rate sales tax is what we have now. We try to make it progressive by exempting certain purchases but I believe a lower rate overall would accomplish the same goal more efficiently.) Instead, we should reduce the number of brackets because it's really the change in marginal rates that distorts incentives.
In Maryland, we have eight tax brackets. The first three of them, covering income below $3,000, are useless. Why not just have a personal exemption for income below $3,000? The federal personal exemption is $3,650. Why doesn't Maryland do that instead? It reduces compliance costs and is better for poor people than stupid brackets of under $3,000. Or, just tax at the middle rate (3%) the first $3,000 of income?
The AMT is another great example. Congress keeps patching it so it doesn't hit the middle class. They do that because it's such a terribly inefficient exercise. We would be better off with slightly higher rates at the top and no AMT than using an AMT to squeeze a bit more out of increasingly middle class people.
Maryland should also scrap their AMT, or at least make it a percentage of the federal AMT. In my scenario, you would calculate your federal AMTL, take a percentage of that, and add it to your MD income taxes. Or something. Just make it simpler!
by WRD on Feb 23, 2011 1:42 pm • link • report
The car tax is ancient and stems back to the colonial days when cows were taxed.
A car tax has no impact on transportation decisions. Connecticut is a car-dependent state with poor mass transit options (compared to Metro buses) even in its cities. (The only exception are the commuter lines into NYC)
You.Do.Not.Want.A.Car.Tax.
People who need a car, will buy a car. A car tax bill is punishing. It's a big, one-shot bill. The only thing it accomplished was to discouraged me from buying a new car. Don't view a car tax as the plastic bag tax on steroids. It will not change behavior and it is horribly regressive. And don't try to justify are car by saying: We will use the car tax money for mass transit! That absolutely will not happen.
by taxesarelow on Feb 23, 2011 1:55 pm • link • report
The only thing it accomplished was to discouraged me from buying a new car....It will not change behavior and it is horribly regressive.
Um.
by oboe on Feb 23, 2011 2:03 pm • link • report
But on behavior: the point is a car tax doesn't encourage you to buy a new and more fuel, efficient vehicle because your annual property tax bill will rise. The higher the assessed value of the vehicle, the higher the tax bill.
If a state tries to encourage hybrid use through a tax break for someone, it then becomes a fairness issue.
Tax breaks for one class of car buyers, people who can afford hybrids, increases the prospect of a tax increase for those who aren't getting the break.
by taxesarelow on Feb 23, 2011 2:43 pm • link • report
1) have fewer tax brackets and
2) Get rid of the AMT
I ask because, despite your numerous comments, I don't know what your proposing.
You said we should "Use consumption taxes rather than income taxes" and "Income taxes are progressive, but why not have a flat sales tax plus a negative income tax to offset the regression of the sales tax?" but then claim that you aren't proposing a sales or VAT.
And you said "We should get rid of all these credits and deductions designed to promote certain activity..." but then start talking about 8 tax brackets in MD - do you really oppose every credit and deduction?
You're all over the map. You're contradicting yourself and you spend a lot more time talking about what you don't want than what you do want.
What are you proposing? Lay it out there. How should MD fix their tax system - other than doing what the Koch brothers say they should do?
by David C on Feb 23, 2011 2:44 pm • link • report
Ok, here goes. I honestly don't know MD state taxes as well as I do federal taxes. This is obviously a little sloppy, but here goes:
(1) Get rid of the AMT at the state level.
(2) Get rid of all tax expenditures especially "incentive" credits. These include the neighborhood stabilization credit, preservation/conservation easement credit, Aquaculture Oyster Credit, all that junk. Replace anti-poverty credits with a single, more robust EITC. Replace everything else with direct cash payments (or don't replace).
(3) Get rid of the first 3 brackets. Have income below $3,000 taxed at 3%. Get rid of the $300,000-$500,000 bracket and expand the 5.5% bracket down to $300,000. Index to inflation.
(4) Index the personal and dependent exemptions to the federal numbers. Index MFJ brackets and exemptions to the single brackets and exemptions. Index to inflation.
(5) Cease exempting food and medicine from the sales tax. Lower the rate to keep revenue the same. (This would work sort of like Virginia does it)
(6) Make the gasoline tax ad valorem at 10% of the pre-tax purchase price of gasoline. This also indexes it to inflation. Do the same thing for alcohol and tobacco taxes (with different percentages, of course). I dream of a carbon tax but that's not really feasible at the state level. Higher gas taxes are second best.
(7) In general play around with sales taxes to raise money and use the EITC to offset the distribution effects of the sales tax. Also, in general, institute user fees and Pigovian taxes over other methods of raising revenue if possible.
Beyond this, I would need revenue/expenditure estimates to suggest specific changes.
Also, if you want a liberal version of those tax principles, check out Donald Marron's testimony before the Senate Budget Committee.
Complexity is the enemy here, just as on the Federal level. Complexity means the rich taxpayers with fancy accountants (and corporations with internal accounting departments) take advantage of tax expenditures.
by WRD on Feb 23, 2011 3:51 pm • link • report
Food and medicine being exempt from sales taxes does not pass the "rich taxpayers with fancy accountants" smell test - quite the opposite, it screws over the poorest people to the benefit of everyone else.
by MLD on Feb 23, 2011 4:45 pm • link • report
Actually, I don't think that's what would happen. First, few people spend more than 10% of their money on food in the first place. I also think the jury is out on how beneficial this tax break really even is to the poor. But I will concede the point anyway, and explain my position further.
The reason for taxing these items is because doubling the tax rate quadruples the resulting economic harm.
So I understand the concern about how a 3-5% sales tax on certain items effects the poor. I propose alleviating this using the EITC. In this manner, a family qualifying for the EITC pays $X in sales taxes every period but has $X rebated periodically (monthly, quarterly, yearly). This way, they don't have less money than they did before but the positive aspects of the sales tax (the substitution effect) are kept.
If you're interested in tax policy, I suggest taking a look at this short PBS video on the subject (runs about 10 minutes, I think, and quotes N. Gregory Mankiw, one of my favorite economists).
by WRD on Feb 23, 2011 5:17 pm • link • report
If DC puts its income tax in line with other jurisdictions, it would encourage high-income earners to live in the city. No amount of spin can make up for the fact that the DC income tax is not competitive and too high.
by Virginia resident on Feb 23, 2011 5:34 pm • link • report
by Tina on Feb 23, 2011 6:29 pm • link • report
Doing this from my phone, but USDA shows all food at just over 10% of disposable income. I may have low-balled a bit, maybe 3-4 percentage points. Maybe. But I proposed increasing tax transfers to compensate anyway.
http://www.ers.usda.gov/AmberWaves/September08/Findings/Charts/Findings2_fig02.gif
by WRD on Feb 23, 2011 9:07 pm • link • report
by David C on Feb 23, 2011 9:43 pm • link • report
by 22201 on Feb 24, 2011 10:08 am • link • report
It's important to separate out measuring tax burden from measuring cost-of-living. Studies on optimal tax policy should confine themselves to measuring tax burdens. This way, we get apples to apples comparisons.
A number of people have picked up on this, but obviously tax rates aren't the only thing residents look at when deciding where to move. The mixture of services, geographic location, weather, and other factors all play roles, too. Policy makers should not shy away from a higher tax burden than neighboring jurisdictions per se. This is especially true when the differences are relatively small.
In our region, the differences in taxation structures, coupled with the similarities in public service quality, means that Maryland and DC often seem less attractive than does Virginia.
@Tina--
On the food issue, check out this chart from Matt Yglesias posted this morning which puts food at 9.5% of disposable income in 2009.
Under my version of the sales tax, the poor would pay just a little bit more for food and just a little bit less for everything else. So I think even without transfer payments--and assuming the incidence of the tax falls only on food purchasers--the poor are in about the same position as they are now and the public is better off overall.
by WRD on Feb 24, 2011 10:56 am • link • report
by Tina on Feb 24, 2011 12:00 pm • link • report
Sales taxes on necessities are extremely regressive precisely because the poor spend a higher percentage of their income on those items.
Plus I don't see how you can say that your plan of "tax everything, sort it out later with rebates/transfer payments" is somehow easier/more simple for regular people than not taxing certain items, which happens automatically via store computers.
by MLD on Feb 24, 2011 12:05 pm • link • report
by Tina on Feb 24, 2011 12:06 pm • link • report
The problem is that getting the working poor to file their taxes is not always easy. I seem to recall that filing is low among that group. And there are people who will shop in Maryland, thereby avoiding the tax, but still collecting the refund. And those who do pay the tax will probably be paying with pay-day loaned money and so will lose money in the long run.
by David C on Feb 24, 2011 12:21 pm • link • report
by Tina on Feb 24, 2011 12:40 pm • link • report
Disposable income, for the USDA's purpose, is income less taxes and rent and a few other items. It's a more conservative number to use for this calculation because it decreases income, the denominator, relative to what it would be otherwise.
Let us also remember that many of the food items people buy are already taxed in many areas. Jurisdictions limit the definition of "food" pretty narrowly. I'm not 100% sure how Maryland does it, but it's likely some "food" items are already taxed.
@MLD--
I am not saying the poor only spend 10% of their income on food. I am saying it's not as much as most people assume. Do you have data on what a representative poor family spends on food as a percentage of disposable income? And what percent of food expenditures is covered by sales tax already? I believe 10% is a low-ball figure for the poor but the real number is probably in the 15% range.
I agree that paperwork is bad. Some other commenters don't, however, and seemed to support lots of tax expenditures. If I was God of Tax, I would eliminate those. I certainly didn't suggest itemizing sales taxes. However, if you are so inclined, you may do so and deduct state (and local) sales/use taxes from AGI on Schedule A of your Federal 1040. So really, that's kind of the status quo...
I suggest compensating using EITC or just a flat deduction. EITC would skew toward the poor. The flat deduction would increase your standard exemption by a MD Comptroller or IRS calculated "average" amount of sales taxes paid by an average family. An increase in the standard exemption would be the easiest way to do it, I think.
Filing rates for poor people are low because many poor people don't get very much of a refund and they owe no tax. Why pay $50 for H&R Block to tell you that you get a $63.25 refund? A more generous EITC would increase the incentive to file and combat poverty efficiently.
by WRD on Feb 24, 2011 3:03 pm • link • report
by Tina on Feb 24, 2011 3:18 pm • link • report
Using the EITC to offset amounts that poor people pay on sales tax on food and medicine doesn't address the fact that poor residents would be paying more every time they buy these necessities but only getting a EITC once annually when they do their taxes (if they do their taxes, because a notable percentage of the population does not file income taxes (this is an entire other discussion)).
Think of it this way: if you're on a fixed income, any increase in cost for necessities (such as one caused by taxing food and medicine) is enough to drastically affect your life. The second the sales tax on food and medicine comes into play, you have wreaked havoc on the budget of any poor resident living on a fixed income by introducing a new cost that may seem small to a middle class wage earner, but is disastrous to someone living, say, from SSI check to SSI check.
by Alan Page on Feb 26, 2011 7:13 pm • link • report
by Alan Page on Feb 26, 2011 7:18 pm • link • report
I understand the concern here, but a few quick points:
(1) Though EITC is currently done once a year, it is relatively easy to change it to a quarterly system.
(2) The marginal tax paid will not be a large amount. It would probably be several tens of dollars per month.
(3) Depending on jurisdiction, "food and medicine" is often construed narrowly. Thus certain items we think of as "food" are actually taxed anyway because they aren't "food as defined by the taxing authority." Think soda, Doritos, or candy. Food items? Yes. Taxable? Depends on your jurisdiction.
(4) The marginal tax paid will be offset by lower taxes paid on everything else. On net, we cannot say if people will pay more or less. That calculation depends on the composition of goods that each individual buys.
(5) Filing status is determined by several factors. This started as my own Maryland-specific recommendations, and I'm not willing to do the research to make specific informed comments about DC's income tax filing compliance. However, if the Government wants to make it easier to file, they can. Many of my other suggestions were designed to do that.
(6) How much people pay under this tax is determined by the incidence of the sales tax. There is good reason to believe it ultimately falls on the consumer, but also good reason to believe some part will fall on corporate shareholders, farmers, or distributors. Ultimately, I tried to present at worst case, where the whole tax falls on consumers.
(7) I also see you're running for the At-Large Council seat. Good luck, but please pass CPA Mobility legislation!
by WRD on Feb 27, 2011 5:10 pm • link • report
http://sociologyinmyneighborhood.blogspot.com/2011/04/globalization-in-my-neighborhood.html
DC inequalities levels are highest in the nation and on par with some of the most uninequal countries in the world.
by Johanna Bockman on Apr 28, 2011 10:40 am • link • report
by Joe on May 17, 2011 4:47 am • link • report
by E on Feb 2, 2012 11:41 pm • link • report
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