September 21, 2006
Mythbusters Take On D.C. Taxes
Virginians and Marylanders often argue that one of the many things stopping them from moving into the District is the taxes. Heck, even those of us who are District residents have complained of the city's historically high taxes. But are all those complaints just as much a myth as the idea that Washington was once a swamp? It looks like it.
By way of the Post and D.C. Metblogs, we find that the D.C. Fiscal Policy Institute yesterday released a report whose findings might shock some of us. They write:
The District of Columbia has a reputation for being a high-tax jurisdiction. The conventional wisdom is that DC households pay more in taxes than their neighbors in suburban Maryland and Virginia — and that DC’s tax levels are a hindrance to its ability to retain and attract residents.Of course, their numbers assume the person or family in question makes between $50,000 and $150,000, so for those of us not there yet, the District may still be an expensive place to live. And in some regards, D.C. is still more expensive in taxes than Virginia, but less so than Maryland. Finally, there are a few caveats here and there that need to be taking into consideration, notably federal income tax deductions based on state taxes paid. But all told it's good to know that D.C. isn't mythical expensive, at least not in tax terms. Now if only we could get out of paying federal taxes...A review of area taxes, however, shows the conventional wisdom is not correct. Rather than the highest taxes in the region, taxes paid by middle-income families and individuals in the District are lower in most cases than these same families would pay if they lived in either the Maryland or Virginia suburbs. DC has now met — and in most cases exceeded — the much-discussed goal of "tax parity" with its neighboring jurisdictions, in significant part because of income and property tax cuts implemented in recent years.
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Too bad that non of this matters when housing is grossly over inflated and salary's have been in check for 15 years..........
Assumes you can deduct state income taxes for federal taxes.
Until you get AMTpwned.
Not only do you have to be making at least $50k for this to be true, you ALSO have to be a homeowner (and thus benefit from the mortgage interest deduction). As the Post article points out, the majority of D.C. residents are renters earning less than $50k.
I've always thought it to be a bit absurd that D.C.'s highest income-tax bracket applies to everyone making over $30k/year. That's a really low cutoff.
What is DC's highest tax rate? I've never been able to find the exact percentage when I've looked (not that I've looked that hard).
don't forget the private school tax that you are, basically, charged in dc if you have or expect kids. want your kids to go to a decent school system? hit your take home pay for a $10k+ per year. that's when you can make an apples to apples comparison on taxes.
sure, you dont "have" to send your kids to private school, but for most in that income bracket with kids it's standard.
For families, it's not the taxes, it's the schools.
It's not one thing, it's a combination of different things, which vary from person to person and family to family.
This is most certainly only true for homeowners. My state income taxes nearly doubled when I moved into DC from VA, so that's a load of crap. And I'm certainly paying more in rent. Granted I don't complain because I'd rather pay and live in DC than save and live in VA, but that's a big spin job by whoever wanted to make folks think DC is cheap. And it's a load of crap.
I ran the figures for the wife & I, we would pay $6000 _more_ in income taxes if we moved to DC from VA. We rent now, but property taxes in arlington are about 0.8% and in DC 0.9%.
From their report:
For this reason, it is likely that taxes paid by new homeowners are somewhat higher than the figures shown in this analysis
The property taxes listed for DC are very low – it looks like they chose those properties that have benefited the most from the property tax cap. These properties will have tax increases of 10% every year until the taxable assessment equals fair market. Nothing bought today would be taxed as low as stated.
For each home value in each jurisdiction, a sample of 50 recently sold homes was used … The homes were selected randomly from on-line property tax databases from each jurisdiction
Was it really random or did the DC Fiscal Policy Institute find properties that created the results they wanted?
My gawd! Are we really so starved for conversation and interaction that we're really discussing the excrutiating minutae of property taxes in the Metro area?
I don't think anyone really believes that the average DC resident would pay more taxes if all things being the same, he were a VA or MD resident. I think the only valuable message from this report (which seems to get released every year) is that difference between DC's and VA's and MD's tax burden isn't as much as most people think. This isn't because DC's is a lot lower than most people think, it's that VA's and MD's are higher than most people realize.
This report needs to be taken with a grain of salt. There's definitely manipulation of the numbers to reach a preconceived conclusion (assuming itemized deductions being the biggest). Fair enough for a pro-tax group to issue a pro-tax report, but it's certainly not as objective as the stellar Myth Busters.
The income tax is a staggered rate.. and $30k is not the floor, it's $40k. Note that is taxable income. http://otr.cfo.dc.gov/otr/cwp/view,A,1330,Q,593736.asp
HR,
It does appear that way, yes.
The top DC marginal in 2006 is 9.5% applied to incomes above $20k. In 2007 it drops to 8.5% and the bracket moves up to $40k.
The study states that "conventional wisdom is not correct." Well, that's wrong. The study shows that DC will have lower taxes than surrounding areas in 2007. However, "conventional wisdom" isn't based on the future, it's based on the past, and in the past DC income taxes are significantly higher than reported in this study. I'm excited about the lower taxes next year, but I certainly don't think that this study busts any myths.
Using 2007 income taxes and 2006 property taxes seems a bit off to me. Why not use 2007 income taxes and 2007 property taxes which will be 10% higher. Or do the comparison with 2006 income taxes which are higher than 2007. By 2009 property taxes will increase by 33% for a tax-capped property (as used in their example) even if the property value stays the same.
Another example of using statistics selectively to prove a result that was predetermined.
Not news here. I ran the numbers on apts in DC and MD when I moved here over a year ago. For equivalent places, the MD rent was only cheaper if you disregarded utilities and fees and yadda yada yadda. Tax was the same: the rates looked lower in MD but the lowest bracket being in a different place (or something, I forget the details) meant that in the end DC--for this under-50k-earning renter--was something like $12 more than MD per year. I'd happily pay 10 times that for the mental-health boost of living in the city vs. suburban stultification. Did I mention the city apt's Mall view?
What this story doesn't mention is that property taxes in DC and in most surrounding burbs have as much as tripled for many people in the past five year. I'm sortof astounded that citizens aren't demanding a more aggressive return of some of that money. We're paying thousands more a year in property tax, and we sure ain't getting more from the DC govt for that money.
In effect, many of us in the rental property business have had our taxes double and then some, and yet our city services still suck.
The DC Fiscal Policy Institute appears to have an agenda - not lowering the property tax rate.
The DC Fiscal Policy Institute's agenda is absolutely clear. It was created by the Center on Budget and Policy Priorities, a liberal think tank that advocates higher taxes and higher government spending. Nothing wrong with that, but looking to them for an unbiased analysis of tax loads is like looking to the NRA for stats on gun fatalities. You might find something interesting in the numbers, but I wouldn't go passing laws based upon them alone.
I wanted to respond to some of the comments on my group's report showing that DC households taxes are now the lowest in the region.
1) To look at property taxes, we randomly picked 50 houses in each jurisdiction that sold for roughly the same amount in 2006 (say $400,000) The databases are all online -- you can do a little checking yourself if you like. The fact is that property taxes in DC on average are far lower than in the suburbs. There is no spin there.
2) My organization was described by someone as pro-tax. In fact, the only tax increases we have advocated for were a) in 2003,the city faced a budget shortfall and we suggested that it should be balanced with a mix of tax cuts and spending cuts and b) in 2006, we supported the recommendation of Alice Rivlin's housing task force to raise deed taxes to support affordable housing programs.
3) A fact that did not show up in our paper is that in 2007, more than half of DC homeowners will pay less in property taxes than they paid in 2005, despite big assessment increases. So, yes, we would argue that additional property tax relief need not be the top fiscal priority in DC right now. I would not call it an agenda to make a policy recommendation that flows from an analysis of empirical data.