DC targets tax relief for middle class

Last month, the District of Columbia Tax Revision Commission issued its report offering suggestions on how D.C. can broaden its tax base, encourage employment growth and promote tax simplification. The D.C. Council created the commission to analyze the District's tax system and propose new approaches to foster economic growth and attract middle-class residents.

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Among the many proposals in the report, the commission recognized that middle-class residents pay a relatively large share of their income to the District in taxes. Therefore, the commission recommended, and the council is likely to approve, changes in individual income tax rates. Currently, an individual's taxable income is subject to the following rates:
IncomeTax Rate
$0-$10,0004%
$10,0001-$40,0006%
$40,001-$350,0008.5%
$350,001 and above8.95%

To alleviate the relatively high rate of tax on middle-income residents while still raising sufficient funds to provide services to residents and run the government, the commission has proposed lowering the rate for single filers earning between $40,001 to $60,000 from 8.5 percent to 6.5 percent. In addition, similar to the federal income tax, a married couple's filing status would be created with more progressive tax brackets for upper-income individuals, as set out below:

Single Filers IncomeDual Filers IncomeTax Rate
$0-$10,000$0-$10,0004%
$10,001-$40,000$10,001-$40,0006%
$40,001-$60,000$40,001-$80,0006.5%
$60,001-$200,000$80,001-$350,0008.5%
$200,000 and above$350,001 and above8.75%

While some taxpayers will move into higher tax brackets at lower-income levels, most single taxpayers will pay less in taxes after taking into account increases in the standard deduction, from $4,100 to $6,100 ($12,200 for married filers), and in the personal exemption from $1,675 to $3,900. Upper-income single filers will pay the highest rate, 8.75 percent, which will apply to income greater than $200,000 for single individuals. But upper-income married filers will pay a reduced rate, 8.75 percent instead of the current 8.95 percent, on taxable income greater than $350,000.

In addition to these rate and bracket changes and the increases in the standard deduction and personal exemption (subject to phase-outs for individuals with income greater than $250,000, or $300,000 for married persons), the commission also recommends eliminating the low-income tax credit, the first-time homebuyer credit, the deduction for long-term care insurance and the exclusion for District and federal government pensions.

Whether these proposals, along with the commission's many other suggestions to revise D.C.'s tax system, will keep a middle class that has traditionally sought the Maryland and Virginia school systems in the District remains to be seen. In any case, revision of the District's income tax is coming soon and all residents need to take these changes into account in planning their future.

Williamson is executive director of the Kogod Tax Center at the Kogod School of Business at American University.