The Council and Mayor are beginning to address the revenue shortfall and budget gap now anticipated in fiscal year 2011, which started October 1. To that end, the Mayor took immediate action to freeze personnel hiring and procurements. Our government faces a shortfall of $100 million in declining revenue and $75 million in various spending pressures. In the grand scheme of things, we have little control over the economy, we can’t make the stock market perform better, and we can’t make commercial property sell for more. But what we CAN control is what we spend, and I believe that should be the focus of our efforts.
If we examine some of the recent tax increases passed by the Council (generally over my objection), you’ll find they fall into that “be careful what you wish for” category. Some of my colleagues believe you can raise taxes and everything will be alright. However, with the two initiatives from last year, our revenues actually went down. The first was the increase in the general sales tax from 5.75% to 6% that went into effect October 1 last year. So what happens? We get our revised revenue estimate from Chief Financial Officer Gandhi, and our sales tax collections are now lower than a year ago. So the tax increase did not cover the continued government spending. We also raised the cigarette tax — a socially admirable goal, yes, but not a reliable source of revenue. It has likewise decreased in revenue production while spending has continued unabated. So after both of these two tax increases, we have dug our hole deeper rather than the other way around.
Of course there are various proposals bandying about right now — predominately to increase the income taxes on high income filers. In fact, one proposal would boost income tax rates for filers over $100,000. I believe such proposals would backfire. There are many interesting statistics contained in the city’s annual “CAFR,” which formally is the Comprehensive Annual Financial Report, or our annual audit. In the most recent FY 2009 CAFR, it states (Exhibit S-2H, Page 163) that in the year 2000 there were just over 26,000 income tax filers in the “$100,001 and higher” category. In the year 2009, this had increased by just under 20,000 to about 45,500 filers.
What was the income tax revenue impact of “growing the pie” by attracting new residents over this time period? It was an increase in tax collections by the city of $334 million in 2009 as compared to 2000, with of course growth in all those years in between. In short: an increase of hundreds of millions of dollars over a decade just from an increase of 20,000 filers in this one tax category. So what if half of them never moved here or we abandon our successful tax policies (which have attracted people back into the District) and the inward migration stops? Or worse yet: What if people decide to leave the District? Will that have a revenue impact? You bet it will, and it will be a lot bigger than whatever amount we may get from increasing taxes on “the rich.”
I believe we were elected to make the tough decisions. I am hoping my colleagues will take the long view and not vote, yet again, to unwisely raise taxes.