[Congressional Record Volume 146, Number 52 (Tuesday, May 2, 2000)]
[Extensions of Remarks]
[Pages E604-E605]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




INTRODUCTION OF THE OMNIBUS DISTRICT OF COLUMBIA TAX INCENTIVE RECOVERY 
                              ACT OF 2000

                                 ______
                                 

                       HON. ELEANOR HOLMES NORTON

                      of the district of columbia

                    in the house of representatives

                          Tuesday, May 2, 2000

  Ms. NORTON. Mr. Speaker, today I am introducing the Omnibus District 
of Columbia Tax Incentive Recovery Act. Congress was out of session on 
the day of the deadline for filing federal taxes, when I had wanted to 
introduce the D.C. Tax Package. Therefore, on the first day the House 
returns, I introduce the Omnibus District of Columbia Tax Incentive 
Recovery Act. The legislation builds on federal tax incentives Congress 
has already passed here to produce market-induced residential and 
business stability and growth. This bill is necessary to assure even 
the sustained stability, let alone real economic growth, that still 
eludes the District economy and the city government. This federal tax 
package gives the city the tools it needs to produce a self-sufficient 
economy. After the financial collapse of the 1990s, and as the control 
board passes from the scene, the Congress has an obligation to help the 
city do what is necessary to increase its own economic output on its 
own.
  The city does not have that capacity today. Ominously, the District 
lacks the essential safety valve of other large cities--a state to fall 
back on in times of economic downturn. The economic forecasters agree 
that D.C. has reached the height of its economic output for this period 
and will experience four straight years of declining economic output 
after 2001, largely because its economic boost has come primarily from 
temporary construction jobs and from jobs held primarily by commuters. 
The surpluses that brightened the city's hopes have already declined: 
1997, $185 million; 1998, $445 million, an artificial increase 
resulting from one-time federal contributions; 1999, $105 million. The 
District's top two private sectors--hotels and health care--actually 
lost jobs, and retail continues to shrink. The city's unemployment rate 
is 5.7% compared with 3.0% in Maryland and 2.7% in Virginia. This 
picture resembles other large cities in the United States. However, 
none survives on city-generated revenues alone, nor could it do so. 
State assistance is necessary not only to meet current expenses, but 
also to make up for sharply diminished tax bases in every major 
American city.
  The District is not requesting similar subsidies or federal financial 
assistance. We believe that the federal tax credit incentive approach 
already approved by Congress that is already having substantial success 
here is the key to permanent stability. Tax credits leverage the 
private sector rather than the government to do the job of growing the 
economy and return many times the revenue foregone by the federal 
government.
  The Omnibus Tax Package I am introducing today has four parts. They 
are: (1) the District of Columbia Non-Resident Tax Credit Act that 
would cost commuters nothing but would fairly spread the cost of the 
services used by federal and other employees, who return to the suburbs 
untaxed the overwhelming majority of the income earned here; (2) the 
District of Columbia City-Wide Enterprise Zone Act, to spread to all 
neighborhoods and businesses tax incentives that have brought 
substantial benefits to communities but with the unintended effect of 
affording an unfair and arbitrary advantage to some neighborhoods and 
businesses over their competitors; (3) the District of Columbia 
Economic Recovery Act, affording a progressive 15% flat tax to 
residents in order to draw and maintain taxpayers; and (4) the District 
of Columbia $5,000 Homebuyer Credit Act, to make permanent the tax 
incentive that is largely responsible for new homebuyers and for 
maintaining and attracting taxpayers to the city.


     Title I: The District of Columbia Non-Resident Tax Credit Act

  Not only do suburbanites carry home two-thirds of all the income 
generated in the District. They leave behind most of the damage that 
occurs to many services, especially roads and other infrastructure, 
while making free use of many of the same services that D.C. taxpayers 
can obtain only by paying for them. Large cities generally recoup at 
lease some of these service costs in order to avoid overwhelming the 
tax base of cities, which are far less prosperous than the regional 
areas where suburban service users reside.
  For years, the District has sought some reimbursement for the heavy 
toll in services commuters use. Neither the obvious unfairness, nor 
even the city's insolvency and increasing need for reimbursement for 
the services provided, has produced any change.
  The District's future economic prospects necessitate a fresh look at 
how to assure that the city gets its fair share of revenue in a region 
experiencing large and sustained growth while its core city does not 
generate sufficient revenue to assure its economic viability. The 
matter is no longer only a home rule issue or a services issue. Today, 
it is a fundamental needs issue to assure a viable capital.
  The city gave up the federal payment in return for a takeover of 
state functions as the only way out of its insolvency. The old federal 
payment was almost never increased and, therefore, declined in value 
each year. A flat payment was a seriously antiquated and obsolete way 
for the federal government to meet its financial responsibility to help 
maintain a capital city. The 1997 Revitalization Act provides an 
automatic increase by assuming at least some of the most costly and 
fastest rising state costs. In spite of the splendid national economy, 
without the Revitalization Act takeover of some state costs, D.C. would 
still be insolvent, the city would not have an investment grade bond 
rating, and the control board would not be on its way out.
  The tax credit is necessary because even the substantial relief 
afforded by the Revitalization Act has not left the District able to 
support itself in the long run. The cold reality is that neither the 
present robust economy nor the District's own exemplary efforts are 
doing enough, or can do enough, to assure a permanent recovery.
  Three reasons account for this dilemma: (1) There simply are not 
enough taxpaying residents and businesses here now; it will take many 
years to make up for the shortfall, and the sufficient business and 
residential growth

[[Page E605]]

may not occur at all if incentives to make the city more competitive 
with the suburbs are not enacted; (2) expenditures are inexorably 
rising faster than revenues; and (3) years of disinvestment in the 
services provided to residents and especially children, in 
infrastructure and in basic neighborhood amenities require immediate 
and substantial funds to hold and attract businesses and residents.
  The new tax credit approach we offer today has the twin advantage of 
greater efficiency and greater reliance on approaches already 
sanctioned by Congress: (1) Congress has already approved tax credits 
for the District and increasingly uses tax credits nationally as a 
tool; (2) a federal tax credit is the fairest way to recoup the cost of 
services because most of the commuters are federal employees, most of 
the services rendered to non-residents are due to the federal presence, 
and most of the land taken off the tax rolls is federal land; (3) a tax 
credit would spread the obligations of securing a viable economy in the 
nation's capital to the entire country; (4) the tax credit is set at 
2%, the average of non-resident taxes in the country; and (5) a 
standard commuter tax, other taxes, or other subsidies, are all 
politically impossible today, while the region has always supported the 
federal payment, a federal solution.
  The tax credit would net the District $400 million the first year, 
and, unlike the flat federal payment would automatically rise every 
year because incomes increase every year. The take-home pay of 
commuters would not change because the 2% of their salary that would 
otherwise go to the federal government would instead transfer to the 
D.C. government (thereby also eliminating any new administrative 
burden).


        Title II: District of Columbia City-Wide Enterprise Zone

  Several extraordinarily valuable enterprise zone tax benefits 
constitute the major financial tools that have been used for business 
revival and new commercial and office construction in the city. Among 
the most successful have been the wage tax credit allowing an employer 
a 20% credit for the first $15,000 of an employee's income if that 
employee is a D.C. resident. This credit not only helps attract and 
retain businesses, it also helps to correct the severe imbalance that 
allows two-thirds of the jobs in the city to go to commuters. Another 
new benefit, the elimination of capital gains altogether, is expanding 
and creating businesses in many city neighborhoods and downtown. The 
success of zero capital gains has already led the Senate to make this 
provision city-wide. A third tax incentive, tax exemption for up to $15 
million in bonds, is fueling much of the construction boom the city is 
experiencing, and construction alone accounts for the major portion of 
the increased economic output of the District today.
  However, because the District is small and compact, multiple 
enterprise zones have had unintended effects. High income university 
students with little personal income have brought Georgetown and Foggy 
Bottom businesses within the zone, but businesses in struggling areas 
of Ward 5 do not qualify. This title would eliminate an unearned 
advantage that forces competition among our already depleted pool of 
businesses instead of between those in and outside of the District.
  The solution is to designate the District of Columbia itself an 
enterprise zone. Only this solution will erase indefensible 
distinctions that tear neighborhoods apart and help some D.C. 
businesses, neighborhoods and residents over others that are similarly 
situated. The citywide zone solution also draws upon the criterion of 
poverty already in the law because the present law requires a 20% 
residential zone poverty rate for businesses 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 22%, it makes 
sense to use the city-wide poverty rate to designate the entire city an 
enterprise zone.
  The $5,000 Homebuyer Tax Credit was always citywide and has proved so 
successful that the Senate has tried to raise the income limit (see 
below). The citywide success of the Homebuyer Credit shows highly 
effective tax breaks can and should be used to encourage the economy 
throughout the city.


             Title III: D.C. Economic Recovery Act (DCERA)

  As valuable as the tax credits the District has achieved are, it is 
the one that the city has not yet achieved that has consistently 
provoked the greatest excitement and would have the greatest effect. 
There is general agreement that the 15% Progressive Flat Tax (PFT) 
would promote a dramatic increase in residents and would stop taxpayer 
flight altogether. A residential increase in indispensable to the 
survival of this city. The control board conservatively estimates the 
need for an increase of 100,000 residents to support city government 
services unattainable under present conditions.
  The 15% progressive flat tax works this way: After affording sharp 
increases in the traditional standard deduction and personal exemption, 
a uniform rate of 15% would be applied progressively up the income 
scale to reduce a resident's tax liability--from approximately 80% 
reduction to a one-third reduction in taxes owed, depending on income. 
The lower the income, the greater the tax reduction. The DCERA would 
take 50% of D.C. residents off of the tax rolls altogether. The uniform 
rate also would rescue the remaining taxpayers from bracket creep, and 
assure that income increases resulting from the tax cut are not then 
significantly taxed away.
  I first introduced the Progressive Flat Tax in the 104th Congress. I 
remain persistent not only because of the city's continuing and serious 
taxpayer deficit, but particularly because of the strong support I have 
received for the PFT from congressional leadership. They include Senate 
Majority Leader Trent Lott (R-MS), who sponsored the first-ever D.C. 
town meeting in the Senate and Senator Connie Mack (R-FL), Chairman of 
the Joint Economic Committee, and other members, who remain strong 
supporters of the PFT.


     Title IV: The District of Columbia $5000 Homebuyer Credit Act

  This title would make permanent the $5,000 Homebuyer Credit, perhaps 
the most successful economic stimulus in the city's history. It is 
chiefly responsible for stemming the flight that almost destroyed the 
city's tax base during the 1980s and during the financial crisis and 
insolvency of the 1990s. The credit offers significant evidence that a 
tightly targeted tax incentive can have a major turn around effect on a 
specific problem confronting a city.
  The credit has been so successful that we have recommended that 
states do the same for the many large cities that are rapidly losing 
taxpayers. In its first year, despite the city's financial problems and 
damaged reputation, the credit made the District first in home sales 
increases in the United States. According to an independent study by 
the Greater Washington Research Center, 70% of D.C. homebuyers have 
used the credit, and 51% purchased homes because of the credit.
  Last Year, the Senate was so impressed with the Homebuyer Credit 
results that it increased the income limits for joint filers from 
$130,000 to $180,000. The limit for individual filers is $90,000. This 
increase was passed by the House and Senate, but no omnibus tax bill 
was enacted last year. Nevertheless, the Senate action demonstrates 
congressional acknowledgment of the effectiveness of tax credits in 
general and of the $5,000 homebuyer credit in particular. Fannie Mae 
has converted the credit into up-front money towards the purchase of a 
home, affording the credit significantly greater value to the 
individual.
  The $5,000 homebuyer credit proved itself so quickly and so well that 
I have been able to get it repeatedly extended by Congress. The credit 
is similar to the PFT in its magnet effect. Until the PFT is enacted, 
the $5,000 credit is minimally necessary if the city is to have any 
chance of increasing its still small and depleted tax base. The credit 
has proved itself so definitively that to get the full effect, it 
should be enacted permanently.

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