[Congressional Record Volume 142, Number 110 (Wednesday, July 24, 1996)]
[Senate]
[Pages S8641-S8643]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MACK (for himself, Mr. Lieberman, Mr. Abraham, Mr. Lott, 
        Mr. Hatch, and Mr. Bennett):
  S. 1988. A bill to amend the Internal Revenue Code of 1986 to provide 
for individuals who are residents of the District of Columbia a maximum 
rate of tax of 15 percent on income from sources within the District of 
Columbia, and for other purposes; to the Committee on Finance.


             the district of columbia economic recovery act

  Mr. MACK. Mr. President, I am pleased to introduce with my colleagues 
Senators Lieberman, Abraham, Lott, and Hatch the District of Columbia 
Economic Recovery Act. The social, administrative, and fiscal problems 
of our Nation's Capital are well documented: High crime rates, poor 
schools, deteriorating infrastructure, and inadequate delivery of basic 
public services, just to name a few. The District of Columbia is facing 
its greatest economic crisis since it was established in 1790. Congress 
has taken major steps, including the creation of a financial control 
board, to assist the city during this current financial crisis. But 
despite these efforts, the city has a long way to go to achieve 
economic self-sufficiency.
  The root of the District's problems is an ever-eroding middle class. 
Since 1950, Washington's population has declined by nearly 250,000 
residents: In fact, 68,000 people left between 1988 and 1993 alone. The 
vast majority were middle-class families whose taxes funded the city's 
operations. So far, D.C.'s response to this decline has been misguided: 
even-higher taxes. But this has only led to even more residents leaving 
the city in search of lower tax rates, better schools, and safer 
streets.
  We believe that the best way to help the District is to promote 
economic growth, and the best way to promote economic growth is to 
significantly reduce the tax burden on its residents. Economic growth 
will mean more jobs, more opportunity, greater private sector 
investment, and ultimately a better quality of life in the Nation's 
Capital.
  There is a large and growing consensus that our current income tax 
system has become a tremendous obstacle to economic growth and an 
improved standard of living. After eight decades of misuse by 
lawmakers, lobbyists, and special interests, today's tax system is 
unfair, complex, costly, and punishes work, savings, and investment.
  Therefore, we as a nation need to fundamentally rethink the manner in 
which income is taxed in order to construct a system that is equitable, 
efficient, and can support economic growth. This effort, which perhaps 
appropriately begins in the Nation's Capital, is an important first 
step.
  In order to achieve genuine tax reform, we must take the blinkers 
off, special interests must give way to the overriding national 
concerns, partisan class warfare must end, and the defenders of the 
status quo must step aside to make way for positive change. Mere 
tinkering with the Tax Code, or simply reshuffling the existing tax 
burden is not genuine tax reform. We must create a new tax structure 
that allows everyone to benefit from economic growth. The flat tax 
encompasses this new thinking and fundamental change needed to create a 
fair, simple, and pro-growth tax system.
  The D.C. Economic Recovery Act is an important step in luring middle-
class taxpayers back to the District of Columbia. It provides tax 
incentives, including a 15-percent flat income tax rate for all 
District residents and deductions of $15,000 for individual filers; 
$25,000 for head of household filers; and $30,000 for married filers.
  This will benefit everyone, especially the poor and middle class. Our 
bill includes a $5,000 first-time home buyers provision designed to 
assist middle-class families in purchasing homes within the District of 
Columbia. Second, we have established a zero capital gains tax rate on 
investments within the District, to help spur investment in the 
District, so middle-class residents won't be hurt by onerous capital 
gains taxes when they decide to sell their homes. In addition to these 
incentives, we have included a brown-fields provision that is sure to 
improve the city's quality of life by encouraging companies to clean up 
environmentally damaged District land.
  This bill also provides the opportunity for all Americans to 
participate in the economic revitalization of the District of Columbia 
by extending to everyone a zero capital gains rate for all investments 
made within the District. We believe the American people want to take 
pride in this city, and want it to represent all the best this Nation 
has to offer. For too long, the city's economy has been locked into the 
growth and declines of the Federal Government. Our bill offers the 
chance to spur nongovernmental economic investment in the District of 
Columbia.
  The District of Columbia is not only home to the people who live 
here, it is truly the Nation's city. Historically, Congress has 
recognized this fact, and assured the financial integrity of the 
District. However, we now realize that simply throwing money at the 
problem is not the answer. We must find a way to fundamentally improve 
the city without demanding additional financial commitments from 
American taxpayers.
  We believe that these incentives, along with responsible and sensible 
financial management, are just what the District needs to become self-
sufficient.
  Mr. LIEBERMAN. Mr. President, I am delighted to join with Senator 
Mack as an original cosponsor of this important legislation, the 
District of Columbia Economic Recovery Act of 1996 [DCERA].
  The District of Columbia belongs to each and every one of us. As 
citizens of the United States, we have a stake in the successes, and a 
stake in the failures, of Washington, DC. It is America's city.
  For a variety of reasons, not all of them easily explained, 
Washington is in desperate financial straits. The here and now 
financial prospects are grim for the city and the future gets grimmer. 
This is largely because middle-class families, the backbone of any 
successful community, are fleeing the District in alarming numbers.
  The legislation we are introducing today would instantly transform 
our

[[Page S8642]]

Nation's capital, making it a more appealing place to live, to invest, 
to build, to buy, and to work. This bill is designed to reverse the 
flow of middle-class residents and businesses, who are currently 
fleeing the city for the suburbs. Those still in the District would 
have new incentives to stay. And many others now living elsewhere would 
have a very strong incentive to move into the District with their 
families and with their businesses.
  We cannot make the schools better in the District overnight. We 
cannot promise crime-free streets overnight. What we can do is provide 
middle-class tax relief in the District, as a way to lure these middle-
class taxpayers to the District as a way to reestablish a tax base in 
the District. And once we bring these people back, safer streets and 
better schools can follow.
  Surely we can wait. We can wait until the situation in the district 
is so dire, when nearly all of the tax base in the District has fled 
and we will be asked to take over the city altogether. Waiting strikes 
me as penny wise and pound foolish.
  Instead of waiting, we should consider the merits of the DCERA which 
we are introducing today. This legislation is modeled on legislation 
which has been introduced in the House with broad, bipartisan support, 
by Representative Eleanor Holmes Norton. Both the House and the Senate 
version of the DCERA establish a maximum Federal tax rate of 15 
percent. Both bills double the personal exemption which would eliminate 
Federal income taxes for single residents who make up to $15,000 a year 
and married couples filing jointly who make up to $30,000 a year. At 
the same time, the bill retains the mortgage and charitable deductions 
and would allow a taxpayer to file under the old system, if preferred.
  In contrast to Representative Norton's bill, our legislation 
establishes a zero capital gains rate for D.C. investments held by D.C. 
or non-D.C. residents for 3 years. Representative Norton's bill 
restricts this capital gains treatment to investments held by 
D.C. residents only. In crafting our version of this legislation, we 
were concerned this would limit potential investment in the District. 
For this reason, the Senate treatment is broader.

  Also in contrast to the House DCERA, our bill includes a $5,000 
credit for first time District home purchases and includes a provision 
to clean-up abandoned brownfields within the District. Members of 
Congress not representing the District could not take advantage of the 
tax incentives in the bill and we are working toward an explicit 
understanding that the District would not take advantage of the Federal 
tax incentives in this bill by raising local taxes.
  I very much see this bill as a first step. Some of the urban problems 
Washington faces are unique to Washington because Washington has no 
State, no broader tax base, to draw on. At the same time, many of 
Washington's problems are problems that are faced by cities all across 
this country. If this approach works in Washington, I hope we can try 
it in Bridgeport, New Haven, and Hartford as well.
  I should note that, unlike some proponents of this legislation, I am 
at best an agnostic on a flat tax. I believe progressivity in our tax 
rates is inherently fair and am pleased that the legislation we are 
introducing today has elements of that progressivity by providing such 
a generous personal exemption. At the same time, a good number of our 
cities are facing the loss of their middle-class population and the 
only way to rebuild that base may be through bold measures like a flat 
tax which has clear and compelling benefits for the middle class. The 
people we are really anxious to bring back to our cities are the 28 
percenters. Under the current Tax Code a typical family in the 28-
percent bracket would be a couple with two children who make roughly 
between $39,000 and $95,000 after deductions. Our bill would create a 
very favorable tax incentive for these people to stay in, or move to, 
the District.
  Mr. President, the most important thing there is to say about urban 
policy in this country is that we really do not have an urban policy. 
We know what has not worked; today we are introducing legislation that 
we believe will work and there is no better place to start than in 
Washington, DC, a city that belongs to all Americans.
  I urge my colleagues to join us in cosponsoring this important 
legislation.
  Mr. HATCH. Mr. President, I rise today to join Senators Mack and 
Lieberman in sponsoring legislation designed to spur economic growth in 
the District of Columbia. The economic circumstances in the District 
have eroded so significantly that they can no longer be casually 
dismissed. Failure to act now with investment incentives would cost the 
District even more in lost financial opportunities--financial 
opportunities the District, and indeed our entire Nation, cannot afford 
to miss.
  Opponents of this legislation may be critical of the special 
treatment given to the District of Columbia as opposed to other areas 
of the country. Yet, this should be the greatest city in the world--
east of Salt Lake City.
  In all seriousness, however, I believe that it is imperative that the 
Capital of our Nation stand for democracy, economic development, and 
security. It is difficult for the District of Columbia to represent 
these qualities when it has become nearly unmanageable and is on the 
brink of financial ruin. Something must be done to breathe new life 
into Washington, DC. Otherwise, I've got some ghost towns in Utah I can 
show you.
  And, I want to emphasize that we are not talking about an infusion of 
Federal funds. We are talking about encouraging private sector 
investment in the city. We are talking about incentives for people to 
live here. This legislation provides a way to bring both the capital 
and stability needed to start the healing process.
  The components included in this bill are specifically designed to 
revitalize our Nation's Capital. First, the bill would tax all D.C. 
residents at a flat rate of 15 percent and significantly increase their 
standard deductions, yet retain both the charitable contribution 
deduction and the home mortgage deduction. This provision would give 
the middle class who left because of rising taxes a new incentive to 
return to the District and once again call it home. In fact, this 
recovery plan also establishes a $5,000 tax credit for first-time home 
buyers for residences purchased within the District of Columbia. These 
types of incentives would have a real and immediate impact on the 
District and would help replace the middle-class base that has slowly 
been eroding.
  In addition to these provisions, Mr. President, this legislation 
eliminates the capital gains tax on any investment made within the 
District of Columbia by residents and greatly reduces it for 
nonresidents. This part of the bill provides the District access to a 
tremendous source of capital, otherwise unavailable.
  Not only would this proposal begin to restore the financial viability 
of our Nation's capital city, it would also provide a testing ground 
for studying the effects of the basic principles of fundamental tax 
reform. Our current system of taxation has been much criticized over 
the past year and a half, and I agree that steps should be taken toward 
a fairer, simpler, and more efficient tax system. However, while change 
may be necessary, it must also be done carefully and deliberately. 
Initiating a flat tax system in the District of Columbia could give 
legislators much-needed insight into tax reform on a national scale. 
Success in the District would result in ideas that could be applied 
nationwide. Thus, this legislation would benefit the District of 
Columbia, as well as every citizen of America.
  Mr. President, this bill is far from perfect. It is a bold idea 
designed to reverse the fall of a once-great city. Legitimate concerns 
about the impact of this bill have been raised in recent days by 
members of the House Ways and Means Committee and other. For one thing, 
skeptics of this idea worry that the provisions of this bill would give 
current residents of the District of Columbia a windfall. Other 
concerns that have been expressed include taxpayers moving into the 
District for only a short period to take advantage of the benefits of 
this proposal, then moving out again. Other critics contend that the 
root of the District's problems is not the lack of money, but poor 
management of the resources already present and that therefore, an 
infusion of new money and new residents would not change things 
significantly.
  I agree that the bill we are sponsoring today will not, by itself, 
solve all of

[[Page S8643]]

the problems of the District of Columbia. I also agree that much work 
needs to be done in further crafting this bill as it goes through the 
legislative process to ensure that concerns about loopholes and 
unintended benefits are met. And, I also completely agree that the 
citizens of the District of Columbia must hold its elected leaders 
accountable for waste and mismanagement.
  It is important, however, that the general concepts of this bill are 
put before the Congress. This bill is certainly not set in stone, and I 
would anticipate that many Members of Congress and outside groups will 
have a number of good ideas on how it can be improved. My goal is that 
Congress start taking a serious look at ways to solve the problems of 
our Nation's capital. One of these ways must include expanding the 
local economy and, therefore, the local tax base. And, serious problems 
often require bold solutions.
  Washington, DC is the capital of the United States of America. Every 
day there are buses of people who come to view the monuments, study the 
historical treasures, and participate in their Federal Government. 
Every day there are people from foreign nations who may get their first 
and, in some cases, only taste of America from visiting our capital. 
Unfortunately, a city rife with pot holes, dilapidated police cars, and 
drug dealers and prostitutes openly offering their wares is not the 
impression of our country most Americans wish to leave with visitors 
from foreign countries, let alone tolerate themselves.
  I quote Washington Post columnist James Glassman when I say that it 
is time to act courageously and adopt a proposal that could help save 
this city. I urge my colleagues to become actively involved in the 
debate and in searching for ways to revitalize and reinvigorate a city 
that is as important to Floridians as it is to Utahns, as important to 
Californians as to Pennsylvanians.
  I urge my colleagues to join us in this bold effort to jump start 
both the economy and civic pride of the District of Columbia.

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