District’s Financial Success Translates into Middle Class Tax Cuts, Thanks to Council’s Budget Plan

The revenue collected by the District exceeded expectations across the two most recent financial quarters. And while we should all be pleased that our state is enjoying financial success, we can be especially thankful for this latest news, because it will trigger a series of tax cuts that will ensure middle class residents have more spending money in their wallets in the years to come.

Back in 2014, a broad-based Tax Revision Commission chaired by former Mayor Anthony Williams suggested a package of tax reforms designed to make District taxes more progressive, fair, and competitive with surrounding jurisdictions. In its FY 2015 budget, the Council implemented all the proposed tax cuts, though some were based on future revenue triggers.

The tax cuts affecting the District’s lowest income residents, and initial benefits for the middle class, went into effect for Tax Year 2015 (taxes you’ll file by April 18, 2016, based on your 2015 earnings).

Subsequent middle class tax cuts were not set to take effect until Tax Year 2017 (taxes you’ll file by April 15, 2018, based on your 2017 earnings). However, due to action taken by the Council in its FY 2016 budget, combined with the District’s two most recent quarterly revenue reports, these cuts will instead become effective in Tax Year 2016 (taxes you’ll file before April 15, 2017, based on your 2016 earnings).

Prior to the implementation of the tax reforms, there were only four DC tax brackets: $0-10K, $10K-40K, $40K-350K, and above $350K. The reforms created a new middle class tax bracket for incomes of $40K-60K, created a new tax bracket for millionaires, and slightly reduced taxes for those earning $350K-$1M.

How will these tax cuts impact your checkbook?

• Have a negative income from -$1K or less? Your tax refund will nearly double
• Is your income from -$1K to +$10K? Your tax refund will increase nearly 50%
• Is your income from $10K to $25K? Your tax refund will double.
• Is your income $25K to $50K? You will pay a third less in taxes.
• Is your income $50K to $100K? You will pay a sixth less in taxes.
• Is your income $100K to $200K? You will pay ten percent less in taxes.

As a result of the full package of tax reforms being implemented, the District will have the most progressive tax system of any state in the nation. Nowhere else in the nation will the lowest income twenty percent of earners pay a lower effective tax rate than the top one percent.