Tuesday, June 10, 2014

DC Tax reform and cuts should not be rushed through without debate

A couple of weeks ago, the DC council held an initial vote on the District's 2015 budget that includes tax reform that was recommended by the District of Columbia Tax Revision Commission.

As part of the fiscal 2012 budget, the District of Columbia created a Tax Revision Commission to analyze the District's tax system and propose innovative approaches to meet future revenue needs. In February the commission completed its work and produced a set of recommendations that it hopes will make taxes more progressive, while attracting more business and ensuring future revenue. After the proposals became public in December, Mayor Gray only supported a few of them and it looked as though the proposals would not become law. But then, starting Memorial Day weekend, Chairman Mendelson announced that he would attempt to implement many of those recommendations.

While the commission's plan has much to admire and gets kudos from outside groups like the Tax Policy Center and the DC Fiscal Policy Institute, these reforms are very complex, and Mendelson's attempt to enact them at the last minute has left almost no opportunity to debate them. A final vote on the package is set for June 17, and Mendelson says it will be difficult to make any changes to it before then. I think this is all by design. In fact, I hate to say it, but I agree with Marion Barry. Mendelson is behaving like a “tyrant” for arranging the last-minute vote on the tax package and for limiting debate.

Now, normally the "going to fast" claim is one made by NIMBY's who want to stop a change, and I normally oppose it. But this is different. The equivalent would be for DDOT to put together a committee to redesign 16th street and then after that committee submits its recommendations for DDOT to decide not to implement them, but then for DPW to announce that they were creating a final design based on the recommendations that they would make available for approval the next day (with limited debate) and then implement two weeks later. The committee part went at a normal speed, but the end was rushed. Legislation shouldn't move this fast from recommendation to implementation.

There are three problems here:

1. Once Gray made it clear that he was not going to implement the recommendations of the commission to which he appointed half of the members, everyone quit paying attention. This is why the yoga tax has now become such a big deal. But this budget modifies dozens of taxes, in ways that have not been studied, and people need time to consider that.

2. There might be an argument for moving quickly on this if the Council is just going to rubber stamp the committee's recommendations, but there should still be some time for debate on the actual law proposed, not just the recommendations. Nonetheless, the Council really shouldn't act as a rubber stamp for a commission that most of its members had no say in selecting (only the Mayor and Council Chair picked members).

3. The council isn't even acting as a rubber stamp. They've made several critical diversions from the recommendations, and so this pacing is particularly inappropriate then.

Among the recommendations that Mendelson ignored, this most critical was to make the tax reform into a tax cut. This tax cut is a result of the decision to ignore commission recommendations to raise the sales tax (an increase I oppose) and to levy a "local service fee" on employers that is designed as a proxy to the commuter tax. The only way to fund this cut was to cut future funding for the streetcar.

Mendelson dismissed criticism of the late addition of these changes, and the limits he placed on debate, "saying the recommendations of the tax commission had been public since December." This is true, but he never let it be known that he would pursue these recommendations. If he done that in December, instead of the day before the vote, the public and the council would have had adequate time to consider and debate them. Such a radical change at such a late point is all-too-reminiscent of the District's controversial last-minute settlement with Jeffrey Thompson's company in 2011.

As an example, the yoga tax isn't actually mentioned in the recommendations, and the word yoga is nowhere in the report. Instead it is a tax on health clubs. So it would be reasonable for the public to not realize that yoga is to be taxed. Add to this that a specific function of the commission was:

"To identify economic activities which are either beneficial or detrimental to the District's economy and which should be either encouraged or discouraged through tax policy."

and one can see how yoga enthusiasts were caught off guard, despite the recommendations being out since December.

The tax reform represents some pretty big changes. Ones that I'm sure that many on the council oppose. Such large changes, some submitted at the very last minute, deserve more debate than the council of residents have been afforded.

In my next post, I'll discuss flaws in the proposed tax reform.

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