Evening star., 1940-03-16
District Tax Problem

District Tax Problem
Since conditions peculiar to the
District, particularly that resulting
from a recent Court of Appeals deci-
sion which has been interpreted as
threatening the present local income
tax, have once again led to congress
sional consideration of a combined
sales tax-income levy for the Capital,
1t is pertinent to re-examine some OF
the arguments advanced in support
OF such plan by the so-called Pond
report.
A 2 per cent sales tax, combined
with a graduated income tax ap-
plicable to earned income in excess
OF $4,000, with an exemption of
$500 for unearned income, has been
recommended for the District by
the Fiscal Affairs Subcommittee and
1t is expected that the House District
Committee will consider the proposal
Monday.
The Pond report set forth num-
ber Of reasons in support of the
recommended sales-income tax. In
the first place. it was shown that
the District tax structure, when COM
pared with that of the States, is
markedly deficient in taxes which
rest directly on persons although it
is excessive in relation to taxes on
property and on business. In 1888
the breakdown in the District was
as follows: Taxes on persons, OIL per
cent; taxes on property, 678 per
cent, and taxes on business and other
taxes, 32.1 per cent. A study of taxes
in Massachusetts,, New York and
Ohio for 1886, the closest year for
which figures were available, showed:
Taxes on persons, 78 per cent; taxes
on property, 62.3 per cent, and taxes
on business and other taxes, 299 per
cent. In the States the proportion of
the total tax load resting on persons
has risen sharply; in the District
there was no tax at all on persons
until 1898 and the one then levied
is negligible.
From this it is apparent that real
estate is bearing a disproportionate
share Of the tax burden, and the
Pond report urged adoption of
provision for varying the tax rate
between $3.50 and SITS, which
would leave a revenue cushion" of
$3,300,000. Such provision for elas-
ITCHY would permit a lowering of
the real estate tax within the pre-
scribed limits when receipts from
other sources are good and lifting
of the property tax to SITS, If nee
essary, when other receipts fall off.
The danger to the District here, Of
course, is that the demand for more
tax revenue would leave the realty
rate at the maximum, instead of the
minimum, and that partially substi-
tute taxes-designed to tighten the
load on real estate-would become
merely new, heavier taxes.
In urging sales-income tax to
supplement other means of raising
revenue in the District, the Pond
report argued that the sales tax can
raise revenue without resting too
severely on any one group or COM
bination OF groups because all groups
contribute something without paying
on the bare necessities of food and
medicine. On the basis of recent
Bureau of Labor Statistics figures 1t
was estimated that over a period of
a year $1,000 income would pay
less than five dollars in sales taxes.
There would, of course, be no tax
on such salary under the income
tax.
The report also estimated that
some 100000 visitors annually spend
about 5000, 900 in the District. They
add appreciably to the cost of gov
ernment, and some of them stay here
for considerable periods of time, but
the sales tax is the only method by
which they can be made to contribute
to the city's upkeep.
As has been pointed out, the pres
ent local income tax is seriously
threatened by the recent appellate
court decision. And even if this tax
Is found still to be applicable to a
majority Of local residents, it would
be grossly unfair so long as a large
body of Federal employees claiming
domicile in the States remain exempt
from 1t. In principle, OF course, the
proposed tax on earned income in
excess Of $4,000 is equally unfair,
and while the extent of the discrimi-
nation would be less, since, on the
basis Of 1885 returns, only about $500
incomes would be subject to, 1t, the
question still remains whether an
unfair principle of taxation should
under any condition be applied.