Most District Residents to See Income Tax Cut Under New Budget

Most District residents will start taking home more of their paychecks next year, and all it will cost the city is the potential future of the still-unopened streetcar system. That’s the line from Mayor Vince Gray’s office, which is unhappy with the DC Council’s decision yesterday to pass a budget including modest income-tax reductions for most workers and compensating for the loss of revenue by gutting funding for streetcar projects.

DC Council Chairman Phil Mendelson led his colleagues in adopting recommendations made by a tax revision board chaired by former Mayor Anthony Williams. Under the board’s recommendations, a new middle-income tax bracket would be created for residents earning between $40,000 and $60,000 annually. People in that range would pay 7 percent local income tax in 2015, and 6.5 percent in 2016 and after; currently, anyone making between $40,000 and $350,000 a year pays 8.5 percent to city coffers.

The tax revisions also include cuts for businesses to make the District more competitive with Maryland and Virginia.

Rewriting the tax code will cost DC about $225 million in expected revenue. The budget the council passed yesterday covers most of that loss by raiding Gray’s desired funding for the streetcar.

Gray wanted to commit $800 million to streetcar projects over the next six years and $3 billion over the next decade, but Mendelson cut that figure in half, saying that the city has greatly overspent on building the H Street line. In his budget report this week, Mendelson said the while District has allotted $214 million to streetcar work since 2006, it has spent only $109 million. Gray’s administration, which envisions a streetcar system that eventually sprawls to 37 miles, says the Council’s budget vote snuffs out the streetcar line before anyone has had a chance to ride it.

“The mayor is deeply disappointed by today’s Council action which kills the streetcar system as we know it,” Gray spokesman Pedro Ribeiro writes in an e-mail. “And today’s decision cannot be undone in the coming years, as some Council members have suggested, because the money will have already been spent on tax cuts for the wealthy.”

Gray’s office contends the streetcar cuts will cancel the planned extension of the H Street line to Georgetown and the construction of a north-south route between Buzzard Point in Southwest and Takoma.

The rest of the income-tax cut not being paid for by streetcar reductions will cost DC residents, though, with an expansion of the city’s 5.75 percent sales tax to include personal services and recreational activities including carpet cleaning and water-delivery services, bowling alleys, car washes, gym memberships, and yoga classes.

The sales-tax expansion was proposed in 2010 but shelved after the prospect of a “yoga tax” brought hordes of stretchy protestors to the John A. Wilson Building. It survived this time.

The council will take a second vote on the budget next month before sending it to Congress.