Testimony for Finance and Revenue Committee
March
2, 2000
DC Statehood Green Party
The DC Statehood Green Party strongly supports the long overdue proposed tax relief for low income and working class families in the form of a District Earned Income Tax Credit (EITC), sales tax elimination/reduction, property tax reduction for low income senior citizens and partial conformity of the DC income tax with the federal. However, the only way to pay for this relief and also guarantee increased revenues to restore and expand our safety net is to modestly raise the tax rates on the wealthy. We urgently need new revenue to strengthen our gutted safety net, especially to provide health insurance for our presently uninsured residents. We propose coupling the legislation with restructuring the District income tax as a flat percentage of the federal, which would be significantly more progressive than our present structure, by raising the rates on the highest brackets (above $100,000). A District income tax based on 50% of the federal liability would generate $300 million/year more in revenue. Higher rates on the wealthy would also translate into an effective federal payment to the District because of the federal deduction offset of state income taxes (the tax cut favoring the wealthy passed last year was a reverse federal payment).
The critical challenge facing our nation this election year is growing income inequality, the gap between the rich and the rest of us. The District income gap is greater than any state, or virtually all the nation's major cities, and is the underlying cause of the poverty and bad health of so many of our residents (see e.g., James Lardner, "Deadly Disparities", WP 8/16/98). DC's ratio of the top fifth to bottom fifth of average income of families with children is 27 to 1, $203,110 to $7,498, compared to the national ratio of 10 to 1. DC's ratio just a decade ago was 16. The middle fifth of family income, averaging $36,918, has not kept up with inflation (Center on Budget and Policy Priorities, Economic Policy Institute). Instead of "trickle down" economics, we have witnessed an "artesian well" flow of wealth to the top. This is also demonstrated by IRS statistics for District tax payers, showing the booming incomes of the wealthy, while low/middle income brackets stagnate or decline.
The health status of many District residents is shocking. While life expectancy has been increasing nationally in the last 15 years, it has declined in the District. Life expectancy for DC men is 10 years below the national average, for women 5 years. For Black men in DC, the life expectancy is now 58 years or less, for Black women 72. The life expectancy for Black men in the District is lower than for any nation in this hemisphere except for Haiti (Doug Struck and Hamil R. Harris, "Death in the City", WP 6/29/98; David Brown and Avram Goldstein, "Death Knocks Sooner for D.C.'s Black Men", WP 12/4/97).
There are two levers available to our local government to reduce the income gap in the District. First, restructure our local taxes to make them progressive and capable of generating additional revenue, and second, promote sustainable job creation for our residents at living wages.
Our present local tax structure is regressive. While their taxable income has been booming, the wealthy continue to pay a smaller percentage of their income in local taxes than do low and middle income brackets (the lowest fifth and middle income families pay about 10%, while the richest, averaging $1.8 million family income, 6.4% in 1995, with the federal deduction offset included; more recent data indicate even greater regressivity as the ill advised tax cut passed last year kicks in (Citizens for Tax Justice and Institute on Taxation and Economic Policy studies).
In 1997, DC residents making over $100,000 had a taxable income of $4.4 billion (Source: IRS; $1.4 billion above 1995), and this does not include income of tax cheaters who fraudulently claim residence outside the District (estimated by the deputy CFO to be $100-200 million/year, which includes uncollected business taxes; WP 1/29/99). The projected taxable income for the $100,000 and above bracket for this year is over $7 billion, $200,000 and above, $6 billion. A mere 3% increase in taxation of the $100,000 and above bracket would generate over $200 million in revenue! (And they would get back a portion in the federal deduction offset).
The long overdue proposed tax relief for low income and working class families in the form of a District EITC, sales tax elimination/reduction, property tax reduction for senior citizens and conformity of the DC income tax with the federal will likely cost over $100 million/year. The reduction and elimination of sales taxes would be a major step in the right direction. Sales taxes especially on essentials are both regressive and increasingly obsolete given the growing impact of internet commerce (see e.g., Peter Behr, WP 12/20/99). However, Rudolph Pyatt Jr.'s critique of last year's tax legislation (WP 4/19/99) is still pertinent: "But until someone identifies additional revenue sources that could offset major tax cuts, it isn't enough to rely on the theory that cutting taxes will cause large numbers of individuals and businesses to return to the District. Neither is it enough to assume that budget surpluses will be sufficient to cover major tax cuts and the costs of routine services and long-term debt." The only way to pay for the proposed tax relief for low income and working class families and also guarantee increased revenues to restore and expand our safety net. is to modestly raise the tax rates on the wealthy, who have been steadily moving into the District in the last decade, despite the lower tax rates of suburban Maryland and especially Virginia (WP 3/3/97, 3/27/97). DC taxpayers in the greater than $100,000 bracket increased from 12,000 to 20,000 in a decade (IRS statistics). It is absurd to argue that wealthy DC residents will leave the District if they are required to pay slightly higher rates, given the advantages of living here, namely lower commuting costs and time, cultural opportunities etc. Who will buy their high-priced homes if they move? And if a small number do move, lets encourage the conversion of these large homes to apartments. Reducing the income gap and "misery index" in the District would benefit the wealthy as well as everyone else by reducing crime, stimulating consumer spending and reducing class/racial polarization.
To summarize, a fair tax package that would give real tax relief to low/middle income people and restore/expand the gutted safety net includes the following provisions:
Since 1994, over $100 million/year in hurtful budget cuts have been forced by DC government/Control Board. These cuts in our safety net for our children, poor, disabled and elderly have included reductions in homeless shelter space and drug treatment programs, elimination of emergency assistance and the Tenant Assistance Program. At least 40% of our children are living in poverty because the TANF benefit with entitlements is below the federal poverty level (the figure may well be as high as 60% if children in low income families not receiving welfare are included; data for 1999, DC Action for Children). We all support efforts to bring able-bodied people into the workforce as productive members. While the Mayor has spoken about private-public partnership to facilitate this transition, we have not yet heard a commitment from him or the Council to raise the benefit level of welfare recipients above the poverty level, nor have seen proposals to insure an adequate level of support for their entry into the workforce at a living wage, with full provision of child care and educational opportunities. For example, education as work should include primary and secondary education in addition to post secondary opportunities presently offered. Child care should be provided to all those looking for a job. The District should use the surplus of federal TANF funds to provide this support, as well as take the lead for a regional TANF level above poverty by budgeted local funds as needed. A District EITC would help lift the so-called working poor out of poverty; TANF recipients and their children should be also be supported above the federal poverty level.
The Tenants Assistance Program (TAP) should be fully restored and expanded to meet real needs in view of the lack of affordable housing in the District. Restoration of emergency assistance, chore aid for seniors and disabled, and GPA should all be a priority on the Council's agenda. (Burial assistance has been restored. I guess we should be thankful that the poor who die from the multifold effects of poverty will at least get a decent burial!)
While we strongly support extension of health insurance to presently uninsured, it should not be at the expense of any other part of the safety net nor should it rely on HMOs, a frightening prospect given their chronic delays in service even to middle income people. Rather as we argued in our submission to the D.C. Health Care System Development Commission, the District should seriously consider a single payer system.
Instead of so-called tough love for the poor, which has amounted to callous indifference, we need "tough love for the rich", that is sharing the wealth of our community for meeting basic human needs, improving the quality of life of all, whatever their income or neighborhood. We should tap the more than adequate resources from within the District while we demand our obligated federal payment as well as our full democratic rights and statehood.
By David Schwartzman with the DC Statehood Green Party
See David's other writings on this site.