Testimony of Yesim Sayin Taylor on the Tax Revision Commission Reestablishment Amendment Act of 2019

September 29, 2020
  • Yesim Sayin Taylor
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Photo/Ted Eytan. Used with permission. (Source)

On September 30, 2020, D.C. Policy Center’s Executive Director Yesim Sayin Taylor provided testimony on the Tax Revision Commission Reestablishment Amendment Act of 2019.  You can read her testimony below, or download a PDF version.

Good morning, Chairman Mendelson and members of the Committee of the Whole. My name is Yesim Sayin Taylor and I am the Executive Director of the D.C. Policy Center, an independent, nonpartisan think tank committed to advancing policies for a strong and vibrant economy in the District of Columbia. I thank you for the opportunity to testify on the Tax Revision Commission Reestablishment Amendment Act of 2019.

The District is, in one very important way, has demonstrated its commitment to good tax policy. There have already been two Tax Revision Commissions since the Revitalization Act (one in 1996, another one in 2012),[1]and both produced reform packages that guard sound principles: creating a simple, efficient tax system that maintains competitiveness by imposing as few disincentives as possible on economic activity while reducing tax burdens on low income residents. The District adopted both packages with small modifications.

But in between the adaptation of large tax reforms, sound tax principles could be forgotten. Especially when under pressure, the District’s tax policy could collapse into an exercise in getting to a number to plug into the budget, with little consideration for what will keep our tax regime simple, fair, and competitive.

As an example, during the Fiscal Year 2019 budget cycle, in search for funding for the Metro and the arts, the city completely altered the structure of commercial property taxes with almost no analysis. At that time the Council created a three-tiered system that taxes the same value at different rates depending on a property’s overall assessment.[2] This was done without any study or analysis of the potential economic impacts. When tenants pointed out that the taxes would be passed on to smaller establishments that happen to lease space in larger buildings, the city created a circuit-breaker type program, but for retail establishments only.[3] We ended up with a patched-up and complicated system that penalizes development, especially in parts of the city where development is needed the most.

And in the six months that followed this major tax change, the city first decreased, and then increased the tax rate for the top tier.

It is unreasonable to expect that a city’s tax regime will be static. But especially for this reason, the establishment of a recurring Tax Revision Commission is important: The Commission’s work could be the basis for a catalogue of well-studied tax policy proposals that pursue the important goal of keeping the city competitive, while maintaining a tax regime that is fair and simple. The Tax Revision Commission can develop these policies outside the highly political environment of budget discussions, which do not always reward good tax policy. To be clear, tax revision commissions need to build consensus, too, but not in a political environment. In the past, this consensus has been a strong enough political pressure on District policymakers to deliver adoption.

Being thoughtful and intentional about our tax policies is even more important today, as the District’s revenue base is being decimated by the COVID-19-induced economic shocks. What has made the District attractive to residents, workers, and businesses—density, amenities, transportation infrastructure, quality of life elements such as nightlife, sports, and cultural events—are likely going to be on hold for the near future. The rapid transition to telework means that even after we have a cure or a vaccine, commuter activity (and the benefits it brings, including demand for office space in D.C.) could be impaired. In the long run, the city will have to ensure that it remains a “destination” for workers, residents, and businesses; and a stable tax environment can help.

Tax increases pay for important investments worthy of public support. But erratic tax policy that does not consider the bigger economic impacts does not serve the best interests of the District of Columbia. And when revenue initiatives sometimes counter the goals the budget tries to achieve on the expenditure side, they cause the city to spin its wheels on important issues such as housing affordability and increasing economic activity. They impose a pure cost on future growth.

The District needs no reminder that public investments can continue to increase only if the city continues to grow. And poor tax policy that does not sufficiently weigh the importance of economic growth will frustrate government investments.

Additional reading

Author

Yesim Sayin Taylor

Executive Director
D.C. Policy Center

Yesim Sayin Taylor is the founding Executive Director of the D.C. Policy Center.

With over twenty years of public policy experience in the District of Columbia, Yesim is recognized by policymakers, advocates and the media as a source of reliable, balanced analyses on the District’s economy and demography.  Yesim’s research interests include economic and fiscal policy, urban economic development, housing, and education. She is especially focused on how COVID-19 pandemic is changing regional and interregional economic interdependencies and what this means for urban policy. Her work is frequently covered in the media, including the Washington Post, the Washington Business Journal, the New York Times, the Wall Street Journal, WAMU, and the Washington City Paper, among others.

Before joining the D.C. Policy Center, Yesim worked at the District of Columbia Office of the Chief Financial Officer leading the team that scored the fiscal impact of all legislation the District considered. She frequently testified on high profile legislation and worked closely with the executive and Council staff to ensure that policymakers fully understand the fiscal implications of their proposed legislation. Yesim also has worked in the private sector, and consulted with international organization on a large portfolio of public finance topics.

Yesim holds a Ph.D. in economics from George Mason University in Fairfax, Virginia, and a bachelor’s degree in Political Science and International Relations from Bogazici University, located in Istanbul, Turkey. 

Endnotes

[1] There was also a Tax Revision Commission established in 1976, which provided recommendations for the D.C. Council in 1977. We could not find any documents on what this Commission studied and what it recommended.

[2] Prior to this change, the city taxed the first $3M of assessed value at $1.65 per $100 of assessed value; and any assessed value above that at $1.85. The Council changes meant the city began to tax properties valued under $5 million at 1.65 percent, properties valued between $5 million and $10 million at 1.77 percent, and properties valued above $10 million at 1.89 percent. This change generated $40 million in revenue.

[3] This provision, targeting retail establishments with annual gross receipts of $2.5 million or less, provided franchise tax deduction up to 10 percent of their rent or real property tax obligation, capped at $5,000 per year.