The following charts, drawn from Federal income tax returns of DC taxpayers between 1997 and 2001, provide some insights into who pays how much for what. A review of these kinds of data before voting on real estate tax caps would appear to be appropriate.
The first four charts below indicate trends in DC taxes as reflected in federal returns (local data are unavailable, at least to NARPAC).
Upper left indicates that virtually all trends have been rising since 1997: numbers of taxpayers; returns; itemized deductions (while standard deductions have declined); taxpayers reporting income taxes and real estate taxes; and, with the exception of the bad stock market year of 2001, taxpayers with capital gains as well.
Lower left shows that the value of state and local income taxes, as reported to the Feds, has been climbing, and real estate taxes have risen after a "correction" in 1999 reflecting simplifaction of the tax code.
Lower right indicates that despite the increases in real estate tax revenues, the increases in income tax revenues have been greater. As a result, the real estate share compared to income has declined from 27% to 20%, and then started up again (but perhaps only due to a temporary drop in capital gains).
The next stack of three charts delves into the extent to which current DC taxes are already "progressive", i.e., hitting wealthier residents more than the less wealthy. Understanding who is paying how much of DC's revenues should color decisions on changing tax policies.
The top chart displays how several primary tax revenue indicators are currently shared among the various Adjusted Gross Income (AGI) brackets used by the IRS. For each of the five parameters shown, the total across the 12 brackets sums to 100%. To pick a few samples, the bracket with the most dependents is $10K-$20K; the bracket with the largest number of tax returns is $30- $50K; the bracket with the highest number of real estate owners is $50K-$75K; the bracket contributing the most in real estate tax revenues is $200-$500K; and the bracket providing the most income tax revenue is the 602 DC households with an AGI over $1 million!
The center chart above is perhaps easier to interpret. It sums the shares in each of those five
categories, so that they all reach 100% at the right-hand end bracket. The extent to which these
lines diverge should give some pause for thought. For instance:o 80% of DC's dependents are in households at or below $50K in AGI, and their taxpayers provide 20% of DC's real estate tax revenues, and 10% of its income tax revenues. Those dependents are certainly the best single (albeit oversimplified) indicator of demands on DC expenditures;
o 80% of DC's taxpaying households report less that $75K in AGI and generate only 30% of DC's real estate taxes and 20% of its income tax revenues.
o 80% of DC's property owners report $150K or less in AGI, and contribute less than 60% of DC's real estate revenues, and only 45% of its income tax revenues;
o and reading back from the highest bracket, the top 10% of DC's taxpaying households provide declare more than $100K in AGI and provide 40% of real estate revenues and about 70% of all income tax revenues;
o considerably more disturbing to some, if those 51% of returns with an AGI below $30K vote as a block, they can run the city while representing only 13% of DC's home owners, 8% of its real estate value, and 2.5% of its household income.
The bottom chart demonstrates why some low income taxpayers are concerned for their rising real estate costs. Above the $50K-$75K AGI bracket, household real estate taxes are a quarter or less of their income taxes. At the $10-$20K bracket that rises on average to 100%, and could well be alarming if it is rising steadily while income does not. The poor become truly "land- poor".
The red line suggests one type of real estate tax cap that would be limited to those whose real estate taxes rise above some fixed percent of their (last year's) income taxes. It would not be applied to those in higher brackets for whom the real estate burden is a relatively small fraction of their taxable income, and hence their income taxes. For instance:
* a 30% cap would have cost DC $9.6M (7.1%) of its real estate revenues in 2001;
* a 25% cap would have cost DC $13.3M (9.8%) of its real estate revenues in 2001;
* a 20% cap would have cost DC $20.9M (15.4%) of its real estate revenues in 2001;
These numbers are a lot smaller than the $58.2M lost by an arbitrary $100K homestead deduction for the 50% of home owners with 70% of DC's homeowner property value who probably do not need it. It seems obvious that whatever cap is applied should address only those in need, and not give gratuitous relief to those who don't need it, and might not even notice it. This requires relating the offending real estate taxes to the recipient's ability to pay as indicated by their income taxes.
A somewhat more difficult-to-enforce approach to accomplishing the same thing would be to establish a variable homestead deduction that phases out at an income level where, on average, the real estate burden has declined to a DC "norm". While professing no tax-writing expertise at all, and living in a world where everything is easy and straightforward, NARPAC might suggest a homestead exemption of $75,000 minus last year's federally reported AGI. In short, the exemption would phase out completely for those with an AGI over $75K. There may be better ways to make real estate taxes "progressive", and suggestions from others would be welcome. It might be noted in passing that the IRS uses a similar device to keep the relatively well-off (over $140K AGI) from avoiding taxes through excessive (?) itemized deductions.
The final chart below belabors the extent to which the "taxpayer demography" is already bipolar.
The 10.4% of Washingtonians with an AGI above $100K comprise:
* only 9.7% of DC's dependents, and 12% of returns with taxable income;
* 36% of those reporting capital gains, but 94% of the total amount;
* 33% of those reporting stock dividends, but 78% of the total amount;
* 33% of those reporting real estate taxes, but 58% of the total amount;
* 26% of those reporting income dividends, but 71% of the total amount;
* 28% of those reporting salaries or wages, but only 22% of those salaries;
* 14% of those reporting pensions, but only 28% of those salaries;
This draft was posted on January 22, 2004
This draft will eventually be polished and included in www.narpac.org/BUDI.HTM
Anyone wishing to rummage through NARPAC's web site, click here.