The D.C. Council plans to increase the city’s sales, cigarette and gas taxes to bridge a massive deficit in fiscal 2010 and avoid a raid on coveted reserve funds.
After three days of “painful” and often heated talks, council members slashed roughly $300 million from the 2010 budget. But they were still short an estimated $40 million, which they needed to raise through so-called “revenue enhancements” to avoid further cuts or a dip into the rainy day fund, as Mayor Adrian Fenty has suggested.
The council’s collective decision to jack up the sales tax from 5.75 to 6 percent, the cigarette tax from $2 to $2.50 a pack and the gas tax from 20 cents to 23.5 cents a gallon would generate an estimated $34 million combined, according to the finance office.
“We tax the things we want to discourage,” said at-large Councilman David Catania, chairman of the health committee.
Increasing the cigar tax to $2.50 per pack would add $400,000, while delaying implementation of standard, personal and homestead deduction indexing — meaning those deductions will not increase year to year until at least 2014 — would add $9.2 million to city coffers. And a new 5 percent tax on the transfer of retail service stations is expected to garner $2.5 million.
The council is scheduled to vote Friday on the entire package.
Legislators backing tax increases argued that services such as welfare had already been cut to the bone. Health-related programs, Catania said, are “hemorrhaging money from every orifice.”
Something must be done, council members said, to generate new revenue and stop the bleeding.
“We’re breaking the backs of the poor, so let’s level the playing field,” said at-large Councilman Michael Brown.
Council Chairman Vincent Gray said he would attach a “sunset clause” to the sales tax increase, so that it automatically decreases once the economy turns around unless the council votes otherwise. Tax hikes, said Ward 2 Councilman Jack Evans, are “like cocaine” — if the government allows expenses to continue rising, he said, it will be back for more.
Ward 1 Councilman Jim Graham continued to lobby for his “millionaires tax,” which would establish an 8.9 percent income tax bracket for D.C. residents earning at least $500,000 a year. The plan was informally rejected, though it may come up Friday as an amendment.
“There’s no rational argument against it,” Graham said.
