An ongoing affordable housing crisis. A metro system in grave disrepair. An uncertain future of federal funding for Medicaid and other services. These problems and more face DC as the city looks to craft its budget for the coming year. However, since 2014 the city has given back $100 million dollars in tax cuts, built up $2 billion in savings for its reserve, and has plans to give back almost $130 million more before the decade is over.
In 2014, the City Council changed tax policy to give away increases in revenue as tax cuts. Whenever the District government reached a new level of income, a new round of tax cuts would automatically take place.
Some of those tax cuts made sense. For instance, a new bracket was created at a lower rate for individuals earning $40-60,000, helping middle-income families. The standard deduction that everyone can take has been raised and stands to increase even more.
Some of the cuts, however, clearly benefit only a select few. Those earning between $350,000 and $1 million a year saw their rates cut. And the new tax code goes further in making sure that this inequality persists from generation to generation, raising the threshold for higher estate taxes from $1 million to $2 million to, in the future, over $5 million.
The biggest issue with this model of tax cuts is that they are inflexible to current needs. Revenue goes out the door, right or wrong, before Washingtonians have a chance to weigh in on how they think it should be used. Our elected officials are shooting themselves in the foot by making it unnecessarily harder to deal with the affordable housing crisis, metro’s challenges, and more.
A similar problem is happening with DC’s budget surpluses. Although final numbers aren’t out yet, as of last estimate the District is looking at a $220 million budget surplus from the last fiscal year. However, this money also can’t go to any of the above concerns—it’s legally mandated to go into DC’s savings. That law has led the city to a record-breaking $2 billion bank account.
In many ways, it’s a good problem to have. Disputes over how to spend surpluses are what accountants dream of.
But in a city where families are being priced out of their homes, trains are smoking on the tracks, and a volatile federal government threatens safety net spending, reserve requirements should be revisited. And automatic tax cuts shouldn’t be slipping out the door.