[Congressional Record Volume 144, Number 20 (Wednesday, March 4, 1998)]
[Extensions of Remarks]
[Pages E282-E283]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 DESIGNATE D.C. CITY-WIDE EMPOWERMENT ZONE AND GIVE MAJOR TAX CUTS TO 
                             D.C. RESIDENTS

                                 ______
                                 

                       HON. ELEANOR HOLMES NORTON

                      of the district of columbia

                    in the house of representatives

                        Wednesday, March 4, 1998

  Ms. NORTON. The economic package I introduce today is the missing 
piece for the revitalization of the District of Columbia. The new and 
improved District of Columbia Economic Recovery Act of 1998 (DCERA) 
proposes tax incentives for D.C. residents and businesses designed to 
stem the inexorable flight to middle income residents from the 
District, a phenomenon that has resisted the presence of a control 
board, a historic rescue package, and improvements in the city's 
financial condition.
  The bill has two important goals. First, the DCERA affords benefits 
to the only group in the city that has received none--D.C. residents. 
Last year, the District government got a billion dollar rescue package 
that grows in value each year and D.C. businesses got billions in 
potential tax benefits that all agree are invaluable. D.C. residents 
are still waiting for tax benefits that can stem the mounting tide that 
is sweeping the middle income tax base from this city while we look the 
other way. Second, the bill makes city-wide the tax benefit package I 
won for the District last year in the Taxpayer Relief Act of 1997.
  Let me turn first to needed remedies to correct unfair advantages to 
some and outright discrimination against others unintentionally 
incorporated into the package we recently won for D.C. businesses. 
Although I pleaded with Congress to make city-wide the benefits for 
D.C. businesses in the Taxpayer Relief Act passed last summer, Congress 
was unwilling to absorb the small additional cost. These very valuable 
business tax benefits, including a $3,000 tax credit for every D.C. 
resident employed and elimination of capital gains tax, were limited to 
certain levels of residential poverty. These neighborhood limitations 
have justifiably stirred objections and the unintended consequences I 
warned of are all too apparent. For example, the Willard Hotel can get 
$3,000 off the $15,000 it may pay to a cleaner or a bell hop, but the 
Hay Adams and the Washington Hilton, whose general manager will speak 
this morning, can not. Businesses in one section of a struggling 
commercial strip are included, but their mirror counterparts down the 
street are not, as one business owner who will speak here today can 
testify. High income university students with little personal income 
have brought Georgetown and Foggy Bottom businesses under the law, but 
businesses in struggling areas of Ward 5 do not qualify. These 
discriminatory effects litter the economic landscape city-wide.
  This section of my bill would correct anomalies that give some 
businesses an unearned competitive advantage, forcing competition among 
our already depleted pool of businesses instead of between those in and 
outside of D.C. The solution is simple and fair; designate the District 
of Columbia an empowerment zone. This designation is sensible for three 
reasons. It would (1) erase indefensible distinctions that tear 
neighborhoods apart and help some D.C. businesses at the expense of 
others; (2) draw upon the criterion of poverty already in the law; and 
(3) assure the congressional intent of the existing package to make the 
city an exemplary capital is not undercut by the hit-and-miss effect of 
the recently passed D.C. tax package. The present law requires a 20% 
residential zone poverty rate for businesses to receive to receive the 
tax benefits and a 10% poverty rate to qualify for capital gains tax 
elimination. Since the poverty rate for the District is 23%, it makes 
sense to use the city-wide poverty rate to designate the entire city an 
empowerment zone.
  I want to move to the second major section of the bill. This is not 
the first time that I have introduced a tax cut package for residents, 
but the urgency has grown. Bills that represent a decided departure 
almost never pass except after several introductions, lots of hard 
work, and the building of momentum. In introducing a tax cut this year, 
I mean to indicate that I do not intend to give up until D.C. residents 
and those who might be attracted here are given a reason to live in 
this city. We need this provision because we lack what has saved other 
big cities from collapse: a state to funnel money back from fleeing 
taxpayers and the ability to tax commuters who work in the city. As a 
result of these twin deficits, the continuing population hemorrhage 
could find the recovery now in progress countermanded by a simultaneous 
exodus of the city's core middle income tax base. We are losing three 
times as many residents in the 1990s as we lost in the 1980s. 
Ominously, in the two years since 1995, even with a control board in 
place to stabilize the city, we lost nearly as many residents as we 
lost in the 1980s. This unchecked flight is virtually the worst among 
other cities today.
  Yet the totals at the bottom line do not tell the real story of what 
the loss means to the city. Worse than the total loss is the income 
distribution of that loss. The people who are leaving I call prime 
movers because they are in the prime income groups. They give 
communities their grassroots vitality, insist upon excellence in 
education for their children, prevent the deterioration of 
neighborhoods, and pay taxes adequate to fund city services. The prime 
movers are in the prime years of their earnings, with disposable income 
rising each year. Two-thirds of the prime movers are ages 25-44 and 50% 
of them earn $50,000 or more. A hefty majority of the taxpayers in 
flight, or 63%, earn between $35,000 and $100,000. This income group 
are the people whom demographers mean when they use the words ``middle 
class.'' The greatest flight, 38% is in the taxpaying core of this 
group between $50,000 and $100,000. Just below them at $35,000-$50,000 
is the second largest group of prime movers. At only 3%, the least 
likely to leave are the poorest residents with income under $15,000, 
who need the most services.
  The major tax breaks my bill provides residents are simple. After 
affording sharp increases in the traditional standard deduction and 
personal exemption, a uniform rate of 15% will be applied progressively 
up the income scale to reduce present tax liability--from a 
79% reduction to a 34% reduction, depending on income. The lower the 
income, the greater the tax reduction. The DCERA would leave 50% of 
D.C. residents off of the tax rolls altogether. The uniform rate would 
rescue the rest from bracket creep, and thus assure that income 
increases resulting from the tax cut are not then significantly taxed 
away.

  Let me try to dispose of one canard. It is true, of course, that 
people don't leave one jurisdiction for another because of their 
federal income taxes, and they are not leaving D.C. primarily because 
of the onerous combination of federal and high local D.C. taxes. It 
does not follow, however, that a substantial federal tax reduction will 
not be an incentive to keep people here or bring some back. The 
feedback from residents indicates that today only a tax break makes a 
significant difference to prime movers. They see a tax break as an 
incentive that overcomes the many disincentives to stay in the District 
today, including schools, other services, and urban conditions.
  The bill has important safeguards against artificially rapid property 
value increases and against gentrification. A list of these safeguards, 
all of them in previous versions of the bill, is attached as an 
addendum to this statement. An important new safeguard against 
gentrification is my recently enacted $5,000 D.C. homebuyer credit. 
This credit already is allowing D.C. residents of modest means to 
become homeowners and to avoid exclusion as the market rises, as you 
will hear from one of our speakers today.
  The District has less to work with than any American city: no 
lifesaving state to help as Maryland helps Baltimore and Virginia helps 
Richmond; no ability to tax commuters who use costly city services, as 
Philadelphia and New York do; and no clearance of state functions, such 
as welfare and mental health, among the costly functions that the 
President's revitalization package did not take. Above all, the 
District uniquely is denied the most fundamental of American rights--
full representation by a Congress that extracts the same federal taxes 
as it does from those, who, unlike District residents, have full 
representation in the Congress and full democracy where they

[[Page E283]]

live. What the DCERA seeks today is not the full value of the rights 
and remedies due us and which we will never concede. Today, we seek 
enough relief from taxes to give us the only route to economic 
salvation for the city--a middle income tax base.

        Safeguards Against Unnatural Increases in Cost of Living

       Requires Proof of D.C. Residency For 183 Days Annually
       Applies Only to Wage and Salary Income Earned in D.C. or 
     Metropolitan Region
       Applies to Investment and Dividend Income Earned Within 
     D.C. Only
       Capital Gains Relief on D.C. Investments Only
       Old IRS Rate on Investments Outside D.C.
       Annual Treasury Study to Protect Against Unintended 
     Consequences
       Stand-by Legislation Examples
       Council Passed Legislation Freezing Property, Sales, and 
     Income Taxes Effective Upon Enactment of DCERA
       Cap on Property Tax Rates and Growth of Assessments 
     (Similar to TRIM, P.G. County)
       Surtax on Capital Gains Derived from Excess Profits
       Revolving Fund for Zero Percent Interest Loans (Or Tax 
     Credits) to Cover Unusual Increases in Home Prices
       Maintenance of Rent Control

       

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