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DC Council Overrides Veto, Ensures Tax Reform for 2015

July 15, 2014 J,

By Mary Kate Hopkins

Americans for Prosperity applauds the DC Council for recently voting 12-1 to override a budget veto by lame duck Mayor Vincent Gray.

The overall budget for FY 2015 features comprehensive reform of the tax system and includes a net tax cut of $67 million per year, will save middle-income families in DC about $400 a year, and represents what the Tax Foundation calls a “major improvement for [DC’s] tax system.” The DC council passed the budget 12-1.

Mayor Gray vetoed the budget on July 11, citing the 5.75 percent tax on service-based industries and the DC streetcar project as his main concerns. He was willing to derail a comprehensive tax reform plan that will boost economic development and prosperity all for the sake of the few service-based purchases that had not previously been subject to a sales tax.

Despite all of the benefits that will come of the reformed tax system, opponents framed it as a “War on Wellness” or “yoga tax.” These were politically charged talking points used by special interests, and they distract from the bigger picture of positive, comprehensive tax reform. As AFP wrote in a letter to the DC Council back in June, expanding the sales tax to include services means that the overall tax base can enjoy a lower tax rate.

Mayor Gray’s veto highlighted the problem of special interests, lobbying government officials for favors, even if it means that the overall economy is worse off. Mayor Gray was willing to let his pet-project, streetcars, become more important than DC’s own residents. The streetcar project, which has been plagued with mismanagement and overspending, is not the way to stimulate economic growth. Gray cited development popping up along H Street due to the project, but the tax cuts will bring development incentive to the district as a whole, not just one area. Tax reform is the best way to benefit the most DC residents, rather than the government funding largely unnecessary projects to bring jobs to a small area of the city.

Comprehensive tax reform will bring economic benefits to DC. As we see elsewhere across the country, states that have low and broad tax burdens also tend to have higher levels of economic growth and job creation, and they also attract people to move there. A recent study by the Mercatus Center reveals that “the average tax rate is negatively and significantly related to economic growth.” The benefits of the tax reform will be felt not only directly by taxpayers in DC, but will also be reflected in greater economic growth and development in the District.

At a time when unemployment and a sluggish economy are dominating headlines, DC could not afford to let their mayor play politics with the budget. That’s why Americans for Prosperity applauds the DC council on successfully overriding the lame duck Mayor’s veto, and keeping DC’s budget on track to encourage economic development, investment, and jobs.

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