Councilman Jim Graham, in an attempt to raise tax revenue from D.C.’s wealthiest residents, instead inadvertently proposed a massive tax cut for the rich, according to officials and tax experts.
Those earning more than $500,000 in taxable income, according to Jeff Coudriet, clerk of the D.C. Council’s Finance Committee, would “get a great tax cut” under Graham’s bill, as it now reads.
Coudriet, whose boss, Councilman Jack Evans, opposes Graham’s effort to raise taxes, stated, “Graham’s bill is badly drafted.”
Experts agreed Graham’s intent when he introduced the bill Tuesday was to raise taxes on those in high income brackets. But under a literal reading, the bill would reduce revenue and give a tax break to the wealthy, they said.
Ryan Ellis, tax policy director at Americans for Tax Reform, which opposes all tax increases, says the bill would reduce taxes. “The bill as written is a massive tax cut for D.C. households making over $500,000 per year.” Ellis added, “According to this bill, someone with taxable income of $499,999 would pay $41,300 in D.C. income tax. Someone making $500,001 would pay $5,000 in D.C. income tax.”
That would be an 88 percent reduction in taxes from current law, and would mean someone earning $500,001 in taxable income would owe less in taxes than someone earning $80,000 in taxable income.
Jeff McLynch, the Northeast regional director at the Institute on Taxation and Economic Policy, which advocates for more progressive income tax laws, said: “My understanding of the intent of the bill is to raise the tax rate on taxable income over $500,000,” but added, “I don’t think the intent of the bill is best expressed as written currently.”
Graham spokesman David Lipscomb disagreed, saying the bill “in fact does what we intend it to do,” which is to raise taxes on incomes over $500,000. Asked whether the bill contained a drafting error or a typo, Lipscomb responded, “Not that I’m aware of.”
Lipscomb said his boss would make sure the bill would raise, rather than lower, taxes.
The bill would create a new 8.9 percent tax rate that applies to taxable income greater than $500,000 — the current top rate in D.C. is 8.5 percent, which applies to all taxable income over $40,000. Graham’s apparent accidental tax cut lies in the wording of the changes the bill would make to the tax table in the D.C. code. In addition to the three existing brackets, Graham’s bill adds a line that reads: “If the taxable income is: Over $500,000; The tax is $5,000, plus 8.9 percent of the excess over $500,000.”
This comes out to a tax break for everyone with a taxable income between $500,001 and $9.6 million.
“That $5,000 amount should be much higher than that,” McLynch said.
