Tax Policy the Texas Way—in Washington, D.C.
12:18 PM, Jun 3, 2014 • By IKE BRANNON
The 620,000 residents of Washington, D.C., are not exactly partisans of supply-side capitalism: In most elections the nominees of the various green/workers/socialist parties usually come close to the vote totals of whatever Republican sacrificial lamb the local party convinced to run.
Nevertheless, the District is on the verge of making a substantial reform that would lessen the tax on businesses and middle-income households, increase the threshold for the estate tax, and generally take a giant step towards making the city friendlier to investment.
This reform was not triggered by political exigencies: Washington is a one-party town for all intents and purposes--a provision that two city council members must come from an entity other than the majority party (a dubious notion regardless of intent) has been effectively jettisoned by canny politicians who run as “New” Democrats or with some other boutique appellation on their true party affiliation. The city’s vast Democratic constituency has not exactly been clamoring for a more business-friendly environment.
Nevertheless, to its credit the D.C. Council realized that the city has only a limited number of businesses without any option to locate elsewhere. While the U.S. Treasury isn’t going to move out of the District, there’s no good reason that trade associations--whose legions outnumber the government bureaucracy--can’t pick up and move across the river, a short Metro ride away from Capitol Hill.
What’s more, D.C.’s liveable environs (save for during the swelter of summer) aren’t enough to keep well-to-do retirees from relocating for six months and a day to Florida, Texas, or some other locale without an income tax--or with an estate tax less punitive than the District's. In fact, it pays people with substantial retirement income to take a second home almost anywhere in the world other than here and thereby deprive D.C. of tax revenue.
What the District has discovered--a bit belatedly--is that it pays to have wealthy people who buy goods and services, invest, and contribute to the community. For the longest time D.C. has tortured households at all levels of the income distribution: Besides the high tax rate on the well-off and businesses, stiff regulations on construction and land usage keep housing prices high and encourage middle-class flight to the suburbs of Maryland and Virginia.
The tax reform changes that calculus for everyone, from rich to poor. Tax rates fall mildly for those at the top, a bit more for those in the middle, and a more generous earned income tax credit makes working for those at the bottom of the income distribution more remunerative as well.
The District is still a long ways from Texas’s copacetic business climate, but the fact that in an epoch where resentment of the rich seems to have hit a fever pitch in the media, a bulwark of left-wing populism is reducing the tax burden by a half billion dollars a year in an effort to attract investment and encourage work might be a better gauge than the latest New York Times of where the political zeitgeist is heading.
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