Catania’s Tax Amendment

On Friday, I waded into the heated debate regarding the D.C. Council’s tax reform package. I noted that the proposal is far from perfect, but it is a good first step towards reforming D.C.’s burdensome tax structure.

Shortly after I released my post, councilmember and mayoral candidate David Catania proposed a compromise: He would maintain the current sales tax exemption for the fitness industry. In exchange, he would change the way the corporate income tax rate is cut.

The original D.C. Council proposal would cut corporate income tax rates from the current 9.975 percent to 8.25 percent in 2019. Catania’s plan would also cut the corporate income tax rate to 8.25 percent, but it wouldn’t reach that level until 2020.

The chart below shows the two competing proposals.

In addition to taking a year longer to reach 8.25 percent, Catania’s plan includes higher tax rates in each and every year. Under this proposal, all corporate businesses would pay higher taxes in order to maintain the sales tax exemption for the fitness industry.

When I made this point a few days ago, supporters of Catania’s amendment said that my characterization wasn’t accurate. But Catania’s own press release on the issue acknowledges that businesses will pay more under this proposal. It says “the difference in the average annual tax savings for small businesses between the current version of the FY15 budget and the Catania Amendment amounts to just $15 or $1.25 per month. When factoring in all businesses—including the very largest—the difference in the total average business tax savings is only $346 annually or just $28.83 per month.”

I don’t have a strong view as to whether these increased taxes are a good swap for maintaining the current sales tax exemption. But I do know that even a D.C. corporate tax rate of 8.25 percent is still far above the U.S. state average of 4 percent.