A tax increase on the wealthy is likely to be put back on the table when the D.C. Council votes on the budget Tuesday. Council Chairman Kwame Brown appeared to have won a victory last month when he knocked off a proposal by Mayor Vincent Gray to raise taxes on those who earn $200,000 a year or more. But Ward 3 Councilwoman Mary Cheh says she’s planning to introduce an amendment to the budget that would raise the rate on those who earn $400,000 or more to help eliminate a retroactive tax on out-of-state municipal bonds.
“I was really worried about small businesses. … $200,000 was way too low for them,” Cheh said Monday, explaining why she voted against Gray’s tax increase. “I believe the impact on small businesses will be mitigated by raising the tax increase threshold to $400,000.”
Cheh’s proposal would end the income rate increase — from 8.5 percent to 8.9 percent — on Dec. 31, 2015.
Currently, the tax on out-of-state municipal bonds would apply to bondholders regardless of when they bought the bonds. Cheh and Ward 2 Councilman Jack Evans want it to only apply to future bondholders.
But Evans doesn’t want to increase the income tax rate to raise the $13 million needed to offset the proposed change in the bond tax. Instead, he’s set to introduce an amendment to eliminate the retroactive bond tax by making it the top priority for spending extra dollars expected from a revenue projection due later this month. Currently, the top priority for those dollars — expected to range anywhere from $40 million to $90 million — is $10 million to hire more police officers.
But the mayor has asked the council to make the top priority for those dollars a $32 million increase in compensation for managed-care companies that serve the poor. Gray’s request was included in a draft of the budget circulated late last week, and it hurts Evans’ chances of getting approval for his proposal. If Evans’ amendment fails, Cheh said she will propose her income tax rate-raising amendment.
“It’s a terrible idea,” Evans said of Cheh’s plan. “We don’t have to either have a tax on municipal bonds or an income tax rate hike. We balanced the budget without either.”
Meanwhile, police union chief Kris Baumann is angry that the mayor and council might move adding officers to the force down the priority list.
“Anyone who votes for this is voting against keeping the public safe,” Baumann said.
