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DCFPI responds to your comments on tax report

GGW last week covered recent findings that taxes paid by DC residents and car-free Virginia residents generally are the lowest in the region, based on new research from the DC Fiscal Policy Institute.

Photo by Salem (MA) Public Library on Flickr.

We at the DC Fiscal Policy Institute appreciate the coverage of our work and the many comments the story received. We would like to respond to some of the comments, including those raising questions about the specifics of our research and those raising doubts about a "pro-tax" organization concluding that DC taxes are lowest in the region.

Some of you thought we should include higher-income renters. That seems reasonable, even though a large majority of DC households with incomes above $100,000 own their homes.

For a single renter earning $100,000, taxes are $5,700 in DC, $5,400 in the Virginia suburbs, and $6,100 in the Maryland suburbs. (These are figures from our report excluding property taxes.) DC is not the lowest, but the differences are small enough that taxes are unlikely to be a deciding factor on where to live—for most people.

Others pointed out our results looked wrong in some places—such as taxes paid by renters earning $50,000. You were right! We reviewed our work and realized that our calculations assumed renters claimed itemized deductions on their federal return, when that wasn't our intent because most renters don't.

Taking that out, the revised taxes owed for a single renter at $50,000 range from $2,600 in DC to $2,900 in Fairfax and $3,500 in the Maryland suburbs. Note that DC taxes are still lowest.

Some were skeptical of the whole effort because they see the DC Fiscal Policy Institute as a relentless pursuer of higher taxes, and thus a biased source. Along those lines, some of you questioned the home values used in our property tax calculations and the car values used to estimate Virginia car taxes. We have a few responses:

First, all research should be looked at skeptically, including DCFPI's. We included a detailed methods section so that everyone could see what we did, question it if they want, and do their own alternate research.

We welcome having others try to answer this question using their own preferred methods—which of course we would then look at with a skeptical eye to see if the methods are flawed or biased. The fact that research from the CFO confirms our findings of low DC taxes makes it hard to imagine other research will lead to wildly different results.

As for our assumptions, we tried to be as reasonable as possible. The methods section of the DCFPI analysis explains that we used Census Bureau data to calculate average home values for residents in each jurisdiction at different income levels, and we used car values used in a similar analysis conducted by the DC Chief Financial Officer.

Finally, DCFPI actually hasn't pursued higher taxes much before the current recession. DCFPI advocated for tax increases in the current recession and the last one, because both downturns depressed revenues and forced large cuts in services that affected all DC residents.

We also supported an increase in deed taxes in 2006 to help fund recommendations of a mayoral housing task force, but this was so non-controversial that Councilmember Jack Evans actually led the way. And DCFPI has opposed tax reductions that we deem unwise.

Ed Lazere is the Executive Director of the DC Fiscal Policy Institute, which conducts research and public education on budget and tax issues in the District of Columbia, with a particular emphasis on issues that affect low- and moderate-income residents. 


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Steel cage match between Ed Lazere & Barbara Lang on issue of whether DC is overtaxed or undertaxed.

Winner gets lifetime property tax abatement.

by Fritz on Mar 2, 2011 1:22 pm • linkreport

In Arlington, they bring in about $60M in revenue from personal property on cars.

They found the average car was worth $7000.

The "Tax" on that is $300, but of course most of that is paid by the state. Net amount paid -- $126.

Your assumption is $600 for a family, basically two cars.

That would have to be two cars worth, on the used market, both near 30K, or a two year old BMW.

You car tax assumptions are way off.

According to Arlington, the average be would be $250 for a two car family.

by charlie on Mar 2, 2011 1:38 pm • linkreport

I am no tax maven... I pay to have my taxes done but I really don't get how a renter making 100K and without any real deductions, gets away with only paying $5,700 in District income tax when they are in the 8.5% bracket. I played with it for a minute and the lowest I can get is a yearly tax liability of ~$7,100

by freely on Mar 2, 2011 1:40 pm • linkreport

@ Freely: With the standard exemption/deduction, the tax table lists $6818 as the yearly tax liability for a $100,000 income. A liability of $5700 would require at least $18,801 in deductions - not sure where these could possibly come from.

by darksurtur on Mar 2, 2011 2:22 pm • linkreport

What wasn't considered is the fact that many, if not most, wealthy DC dwellers keep legal residency in no-income-tax states and avoid all DC income taxes, (unless they're in a certain profession with a small professional tax).

Even for wage earners it's common to purchase a Delaware beach house, rent it for fewer than 6 months, and claim that one commutes the 1-2 hours for at least 6 months. For investors it's much easier and they have a variety of states to choose legal residency from.

While a blanket DC earnings tax may be impossible absent statehood to get through Congress, one which exempted residents of Maryland and Virginia could possibly get through.

The revenue drain is enormous and it's an open joke in DC.

by Tom Coumaris on Mar 2, 2011 8:54 pm • linkreport

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