In 2014 I will probably be running for public office as a DC Statehood Green Party candidate. Our Party has decided that concern for "Returned Citizens" will be a major issue. With over 60,000 mostly black DC citizens who have served time in prison, plus their families, this issue has major impact. Paul Zuckerberg raised the issue of marijuana arrest records harming the future of young people. There are 2 1/2 times as many of those arrests as graduates from high school each year. Our own 2013 At Large Council candidate Perry Redd strongly supported the decriminilization of marijuna arrests during his campaign. It looks as if our Council may actual adopt this stance with a new law. For many jobs you have to check a box regarding a criminal record. Street Vending was one work possibility that did not have this barrier to employment. In my own campaigning I will stress the importance of encouraging basic entrepreneurship as a path from poverty to the middle class.
Testimony before DC Tax
Revision Commission (TRC), Nov. 12, 2013
by G. Lee Aikin
First let me thank you for all your
hard work on this complex topic. My testimony will emphasize two
issues—harm from failure to index, and saving the middle class.
The middle class is in serious trouble, you are in a position
to help. People hate taxes and ignore them if possible. Therefore
serious inequities creep into DC and the Federal tax codes with
little public notice. Often by failure to index, as is true of
several DC tax problems. I am most familiar with the D-40 and D-30
forms, but urge that others be examined carefully. Three minutes
allows little time to present other concerns--Class 2, 3, and 4
taxes; the $1500 Fee in Lieu of Taxes for street vendors; the Basic
Business License; Homestead property tax deductions; and hardship
exemptions--so I hope you will read my entire testimony and
attachments. These inequities and other factors locally and
nationally have seriously diminished the middle and lower
middle class. Without much possibility of achieving middle
class status, the lower classes can loose hope and respect for the
Social Contract. This can have dangerous results.
Issue 1) Most distressing is failure to preserve
the equality of Deductions and Exemptions when Home Rule was
achieved in1973-4, and they were comparable to the Federal rates.
Federal rates have annual COLAs. DC changes had to be voted
annually, but were not. By 1991 taxpayers had lost 50% of this
benefit. In 2004 my DC taxes had doubled relative to Federal taxes,
I discovered NO added change had been made in 13 years. David
Catania agreed it made sense to “couple” our D&E's with the
Federal rate. But, no Council actions took effect until 2006 and
2008. Since then nothing. [I am gratified to report that the Tax Revision Commission has recommended using the Federal Deduction and Exemption rates. This would keep about $85 million in the pockets of our taxpayers.]
In 2012, a family of 4 would typically
subtract $10,700 in D&E's from Adjusted Gross Income (AGI) on the
D-40 form. If our D&E's were coupled with the Federal rate, they
could have subtracted $27,100 in D&E's from AGI. This is a
difference of $16,400. Thus, the family would have paid $786 on D-40
Taxable Income of $16,400. Using the Federal D&E's they would
have paid ZERO. A similar family with $56,400 income would pay
$1,394 less in D-40 taxes. Others have testified about serious
inequities with Schedule H, used to help low income renters and
homeowners.
Issue 2) The D-30 needs major overhaul.
Instructions are opaque [i.e. DC Apportionment Factor: “Multiply
the total income by a fraction. The numerator is the property factor
plus the payroll factor plus the sales factor. The denominator is
three, reduced by the number of factors without a denominator.] I'm
told this is a tax attorney make work project. To change that,
examples should be given as they are in the Federal 1040
instructions. Many very small Unincorporated Businesses only have a
little rental income, or sell a few things. If all income is DC
earned, why not allow inclusion of the Federal Schedule C and/or E,
and skip filling out redundant facts in D-30 Schedules A,C, E, and G,
not to mention most of the rest of the form. In 1986 the D-30 became
required of all Gross Income above $12,000 with a $100 fee
even if there was a NET LOSS. Now a $250 fee is required. To be
fair, the Gross Income should rise to at least $30,000. [A $5,000
deduction is allowed, and up to 30% for personal labor to operate the
business, so an adjustment could be made in the D-40 to allow these
benefits with an increase to $30,000.]
Issue 3) The idea that D-40 should add “taxed
Social Security” to income is unconscionable. SS, first taxed
in 1983 under Reagan, had a tax calculator “benefits worksheet”
allowing singles a $25,000 deduction, and couples $32,000. This is
unchanged in 30 years. According to the CPI calculator, the
2013 figures should be $58,427 and $74,787. Unadjusted a person with
$20,000 SS and $40,000 AGI will pay tax on almost half their
SS; $50,000 AGI and above, on 85% of their SS, another assault
on the middle class. DC's current D-40 deduction for
Federally taxed SS helps rectify this gross unfairness.
Issue 4) The Class 2 Business Property tax and
Class 3 and 4 Vacant Property taxes need serious changes. Reducing the $1.85 Class 2 rate to
$1.65 for property assessed under $3 million is a help, but really
does not fix business in blighted areas. Businesses in Anacostia and
upper Georgia Ave. often minimally improve their property. Taxes in
PG Co. are much lower, and Montgomery Co. has variable rates. Why
can't DC have variable rates or considerably smaller rates on low
assessed properties?
The Vacant Property tax rates are outrageous,
far greater than any in the US, and violate at least the spirit of DC
Code 47-817 Comparison of rates and burdens, “...it is the
intention of Congress, that the tax burdens in the District be
reasonably comparable to those in the surrounding jurisdictions...”
[See attachment] The one month vacancy registration rule is
way outside the one year vacancy norm elsewhere. [In
addition, as soon as you register, your tax is immediately jumped 6
or 12 times the old rate. One 60+ person I know lost her row house
because she didn't realize she should file for an exemption and thus
received a $105,000 tax bill.]
Issue 5) The $1500 Fee in Lieu of Taxes is an
outrage against street and truck vendors. It is far above the tax
small part-time neighborhood vendors might pay on sales. And some
highly successful truck vendors are probably not paying their fair
share. A half day of tax training upon licensing should solve
this problem and be much fairer. This would be similar to the kind
of training certification provided for food handlers in restaurants
and on food trucks. In the late 1980s one could get a vending
license for $35 dollars and pay actual income taxes and 6% on sales.
The $1500 has to be paid even when one has almost no income such as
in January, February and March. There is also a moratorium on
renewing a dropped license. Here too, poor and middle class
entrepreneurs are being harmed and disincentivized.
Issue 6) Another unfair and counterproductive
tax related matter is the Basic Business License. Requiring
licensing of all businesses is another serious disincentive to
business formation by our younger and poorer potential entrepreneurs.
The BBL should not be required below a certain gross income level,
such as $100,000.. A rule could be made that businesses below that
would also take a half day of tax training on how to prepare their
business taxes including the Federal Schedules C and E that pertain
to business income. A simple registration fee of $25 could cover
this cost. This could exempt them from the BBL and improve tax
collection. In addition, the “clean hands self-certification”
that says one does not owe the city $100 or more in taxes or fines is
big problem. I know people who in 2010 used the Tax Amnesty to clean
up their tax situations, and then the following year received OTR
bills in the $hundreds and even $thousands saying they owed taxes
which in fact had been resolved. Sometimes it takes months to clear
up these OTR errors, to finally allowing the BBL to be
granted.
More on Issue 1) Regarding the Deductions and Exemptions
issue I would like to add the following. As pointed out above, with
“coupled” rates a family of 4 would pay taxes on $16,400 less
income. Thus no tax would be paid unless the Adjusted Gross Income
was above $27,100. [$27,100 IRS1040 D&E - $10,700 D-40 D&E's
= $16,400] Without this $16,400 reduction, the 2012 tax is $786.
A family of 4 with Taxable Income of $26,400 or with $36,400 would save
$984 with coupling. At $46,400 the saving is $1,144.
At $56,400 and above the savings are $1,394.
An educated guess suggests that around
$100,000,000 might remain in the pockets of taxpayers with coupling. [The TRC's estimate is $85 million.] Imagine what this would do to our local economy where it could be
spent on food, housing, clothing and other merchandise. These “high
velocity dollars” would then generate additional sales and
income taxes for the city, considerably lowering the initial loss.
Moreover, with recent tax income surpluses ranging near $300 to $500
million we can afford to do this. A small increase of top tax rates
could rectify any revenue problems created. [The top earning bracket rate of 8.95% is due to expire 12/31/15 and drop to 8.5%. The TRC recommends lowering to 8.75% in 2016 permanently for singles above $200,000 and marrieds above $350,000. Since they calculate the total revenue given their recommendations will have a $30.8 million shortfall, should there be a slightly higher rate for the very well off, perhaps those above $1 million?] Has all this inequity and
tax neglect helped drive lower middle class families out of
the city to PG County? This should be studied and analyzed.
Issue 7) Another concern involving COLA's is
Homeowner exemptions. While there have been increases in the
Homestead Exemption amounts over the years, this too seems not
to have kept up with inflation. Analyzing several cases known to me,
it appears that the Homestead Exemption percent is only about 2/3rds
what it was years ago. The 50% Property Tax reduction allowed for
senior citizens is now threatened by the maximum allowed Household
Income. A $100,000 maximum was established in 1992. For 2013, the
CPI calculator shows $166,892. However, The Age-in-Place and
Equitable Senior Citizen Real Property Act of 2011 only increased it
to $125,000. If children with good incomes come to live and care for
Mom and Dad in their failing years, they are seriously penalized if
they still have to maintain their original home. Once again, the
middle class is being hurt.
Issue 8) Another concern, also related to D&E's
is the Exemption for “over 65” or “blind.” After caring
years for my husband who died of Alzheimers, I can tell you blind
care would have been much easier. Let us lead the nation by allowing
an exemption for anyone who is medically certified as being at least
as handicapped as a blind person, i.e., wheelchair bound, dementia,
etc.
While studying posts by the TRC, I was
thoroughly puzzled by inclusion of Figure II-h showing “Current Law
and Changes Recommended by the D.C. Tax revision Commission as Shares
of 1998 Family income for all Taxpayers” and 3 more related
Figures. This seemed to be part of a recent report of TRC
recommendations, and I wondered why you did not use the 1-30-13 ITEP
Table 1 which is also attached. If the 1998 Recommended total
taxes is what I saw, then it is clear it recommended that the middle
89% should pay the most, ranging from 10.1% to 11.3%, while the
richest 1% would pay 9.4% and the poorest 20% pay 8.9%.
If this is
actually the current thinking, that is even worse. The Institution
for Taxation & Economic Policy (ITEP) uses 2010 income levels
which shows (after a Federal deduction offset) that the middle 20%
paid the most—11%. On either side 9.8% and 9.4% was paid. Thus
the middle class again paid the most. The poorest 20% paid
6.6%, but the richest 1% were the winners, paying only 6.3%.
Surely this Commission can do better.
In sum, I strongly urge you to do your
best to reverse national and local efforts causing the
systematic evisceration of Middle Class prosperity and hope
for those even farther behind economically.
ITEP 1-30-13 Release, Table 1 of 2010 tax rates by Quintiles
* * * * * *
I have covered a number of these issues
in detail in earlier blog articles here. See the Sept. 3, 2013 post: INDEX
of all Posts, Recent to Oldest, Dates, Titles
Articles related to taxes are dated in
red, and the articles in early 2012 are related to DC taxes.
There is an October 21, 2012 post on saving Social Security, which
also is oriented toward saving the Middle Class.
G. Lee Aikin, DC Statehood Green Party
