Here’s What the Experts are Saying about D.C.’s Tax Reform Proposal

June 19, 2014

TF Staff

TF Staff

For the first time in decades, the District of Columbia is considering impressive, far-reaching tax reform that broadens tax bases, lowers business and individual income tax rates, and makes D.C.’s tax code more competitive with neighboring states. The D.C. Council has already approved the package in an 11-2 vote.

However, the fitness club industry is attempting to water down the proposed rate cuts by lengthening the phase down of D.C.’s corporate income tax (called the “business franchise tax”), in hopes of retaining their industry’s current exemption from the D.C. sales tax.

This would be unfortunate, and is a clear example of why tax reform is so hard. Everyone agrees in theory that broadening bases and lowering rates is good, fair, and competitive, but states rarely have well-structured tax codes because interests lobby to protect their favored exclusions, exemptions, and credits, keeping the tax base narrow.

Experts across the D.C. policy community are positive on a broad-based tax code; and this is what they’re saying about D.C.’s tax reform:

Full articles from those quoted above:

Joseph Henchman, Tax Foundation: Vida Fitness Spreads Half-Truths about DC Tax Cut Bill
Michael Mitchell, Center on Budget and Policy Priorities: District of Columbia Shows How to Cut Taxes Responsibly
Ed Lazare, D.C. Fiscal Policy Institute: Expanding the Sales Tax to Make DC’s Taxes Fairer and Stronger
Mark Lee, Washington Blade: Phil gets it wrong, but so do ‘fitness tax’ opponents
Citizens for Tax Justice: Will Anti-Tax Yogis Sink Tax-Reform in D.C.?
Nicole Kaeding, Cato Institute: The D.C. ‘Fitness Tax’ in Context
Matt Yglesias, Vox.com: DC wants to tax yoga lessons — and it's a great idea

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.

An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.