Senior Policy Analyst
Program Director, State Policy Fellowship Program
The District of Columbia functions much like a state government when it comes to tax policy, and new tax changes there show how states can cut taxes in a responsible way for a broad range of families while still funding important services. It’s a particularly helpful model in light of the poorly designed tax cuts that have been so common in states over the last two years.
The D.C. bill, which the City Council approved on May 28, takes several steps to create a more equitable and sustainable tax system, including:
The bill includes some unwise changes. In particular, it gives wealthy households a significant estate tax cut by raising the threshold — that is, the value of an estate that is exempt from taxation — from $1 million to $5.25 million. This change will benefit only a few wealthy households while costing D.C. millions of dollars a year.
Nevertheless, D.C.’s tax and budget choices stand in stark contrast to some other states’ irresponsible policies.
North Carolina, for example, has slashed taxes on wealthy households and corporations while raising taxes on low- and middle-income families, cutting jobless benefits, and blowing a huge hole in the state budget that will make restoring recession-era cuts in funding for K-12 schools and public colleges and universities next to impossible.
In Kansas, costly tax cuts overwhelmingly directed to wealthy households and corporations have led to further cuts in funding for colleges and universities, local health departments, and other important services — adding to cuts enacted after the recession hit. The tax cuts haven’t delivered the promised boost to the state’s economy.
With economic growth modest and revenues just now returning to pre-recession levels, states should approach tax cuts carefully and thoughtfully. But if tax cuts are part of the conversation, the District of Columbia provides a model worth considering.