April 20, 2009

Coalition for Community Investment supports the Equitable Income Tax Act

As part of the Coalition for Community Investment, Bread for the City has signed on to the following letter in support of the 2009 Equitable Income Tax Act, which would adopt revenue-raising measures without unduly burdening the most vulnerable DC residents in this time of economic crisis.

The Coalition for Community Investments supports the Equitable Income Tax Act of 2009, a bill that would set a new income tax bracket for households earning more than $500,000. This proposal, which closely follows one of the Coalition’s revenue-raising recommendations, would raise revenues to address DC’s serious budget shortfall and help preserve services that support DC families and neighborhoods. The Equitable Income Tax Act would raise revenues in a progressive way, with no effect on low-and moderate income households. It offers a good alternative to several revenue proposals in the FY 2010 budget that would fall most heavily on low-income residents.

A number of states have established a new income tax rate for higher-income households in recent years, including Maryland, California and New Jersey — and other states such as Delaware are considering doing so. The new tax rate of 8.9 % in the DC bill would increase taxes by just $400 for a family earning $600,000. It would leave the DC’s top income tax rate below the top rate in the Maryland suburbs — now 9.45 percent when both state and county income taxes are considered.

Leading economists endorse this approach to addressing state budget deficits. Peter Orzag (now head of the U.S. Office of Management and Budget) and Nobel Prize-winner Joseph Stiglitz have noted that “tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run.” They note that cuts in government programs can be damaging to local economies. Tax increases on higher-income families have a more limited effect because these families spend and invest much of their income outside of the local area and because modest tax increases are unlikely to affect their consumption.

The revenues that would be raised by the Equitable Income Tax Act could be used to restore funding to a number of programs that have been cut in recent years — such as affordable housing or pre-K education. These services are important to DC residents and to the DC economy.

The proposal to raise revenues through a new income tax bracket offers a good alternative to regressive revenue-raising provisions in the FY 2010 budget. The budget would eliminate cost-of-living adjustments to three tax benefits that are important to low-income families: the personal exemption, standard deduction, and property tax homestead deduction. And it would establish a new streetlight maintenance fee and increase the E911 fee, adding roughly $60 to annual utility bills for DC households. These would fall especially hard on low-income families who already struggle to pay utility bills and often face the threat of a utility shut-off.

In February 2009, the Coalition for Community Investment released recommendations for raising revenues or finding budget savings, including a recommendation to create a new bracket for families above a certain income level. The Coalition thus supports the Equitable Income Tax Act as one of several possible ways to raise revenues and preserve services, without adversely affecting low- and moderate-income families.

The Coalition for Community Investment represents over 160 diverse organizations and individuals committed to public investments that expand economic opportunity for our neighborhoods and families, and support a fair and transparent budget process. If you or your organization would like to join with us in the Coalition for Community Investment, please email signstatement[AT]some[DOT]org.

1 comment:

Anonymous said...

I too believe that the District should increase the tax rate for high earners. And I suppose the best we can hope for is a rate for households with taxable incomes over $500,000. But, as I've said on my blog, I'd like to see that tax rate kick in at a lower level.

A new paper by the Center on Budget and Policy Priorities adds another expert voice to the economists CCI cites. And CBPP makes an interesting point that I haven't seen elsewhere: "Because many filers can deduct state income taxes from their federal taxable income, high-bracket taxpayers will find that state increases 'net out' to less than they appear."

For those who are interested, the paper is http://www.cbpp.org/cms/index.cfm?fa=view&id=2792.