3 in Personal Income has been running about 2 percentage points lower than the national average. The neighboring state of Maryland has generally been keeping pace with the nation, while Virginia has consistently grown faster than the national average. Brimmer & Company forecasts that the District of Columbia will continue to experience slower growth in the next five years than is anticipated for either of its neighboring states or for the nation. The basic conditions that limit economic growth in the District of Columbia will not be significantly altered by statehood. In addition to having to live with a slower rate of economic growth, District of Columbia residents regularly receive less than one-half of the total earnings generated within the District. A large share of District net earnings accrue to persons working in the District but residing in suburban Maryland or Virginia. Federal law does not allow the District of Columbia Government to impose an income tax on nonresidents' earnings in the District. In contrast, all other states (and some which tax income originating within cities) their jurisdictions do tax earnings by out-of-state revenues residents. If the District of Columbia were to become a state, it too could adopt a commuter tax. Such a move would generate a significant amount of tax revenue. Revenue Sources and Taxation in the District of Columbia The Government of District of Columbia collects from taxes, fees, grants under Federal programs, and other miscellaneous sources in much the same way as other states and local governments. Its position differs from that of other jurisdictions because, (1) it receives a Federal payment regularly in compensation for costs associated with the presence of the Federal government, and (2) it is subject to special Federal restrictions on its taxing authority and on its budgetary discretion. The District of Columbia is prohibited from taxing earnings of workers residing outside of the District, and properties within the District owned by the Federal Government. In addition, the properties of certain organizations located within the District are specifically exempt from District taxes. Income and property taxes are the leading sources revenue, followed closely by sales taxes. of District 5 These three major sources provided over 65 per cent of total general fund revenues in Fiscal Year 1986. Taxes from all sources have been providing over 70 per cent of total revenues in recent years. The remaining revenue sources include the regular Federal payment which had been about 20 per cent of total revenues in 1982 and 1983, but has been a steadily declining share since. Miscellaneous nontax revenues including charges, fines, etc., provided about 5 per cent of total revenues in 1986. The D.C. Lottery is now providing about 2 per cent of the revenue total. Total tax revenues increased at an average annual rate of 9.1 per cent from FY 1982 through FY 1986. Over the same four years the regular Federal payment to the District increased by only 5.2 per cent. Largely because of the lower growth in the Federal payment, total increased at an average annual rate of 8.7 per revenues cent. Forecasts of revenue growth for the next five years substantially lower than in the recent past. This reflects the expectation for more moderate economic are growth following the period of rapid recovery from the 1982 recession. The overall revenues is growth rate for total forecast at 5.9 per cent annually over the next five years. As in the past, the three largest contributors income taxes, property taxes, and sales taxes · are expected to grow faster than the average rate. The collective growth rate for all tax revenues is forecast at 7.6 per cent for the next five years. The obvious retarding effect on the growth of total revenues lies in the projected decline in contributions from Federal revenues are sources. Their contributions to total forecast to decline from 20.5 per cent of FY 1986 to only 14.3 per cent in FY total revenues in 1991. Included is million each year, which was the level budgeted for FY 1986 prior to the reductions imposed by the Gramm-Rudman the regular Federal payment at $425 cutbacks. If the District of Columbia were to become a state, it could consider the imposition of taxes on the District earnings of all nonresidents. If such a tax had been in effect it would have yielded nearly $500 million in calendar year 1986. However, it is more realistic to assume that such a commuter tax would not apply to 7 the Federal Government. nonresidents working for Assuming that a commuter tax would be imposed only on nonresident earnings in the private sector, the potential additions to District revenue would have been about $290 million in 1986 and would rise to $356 million in 1990. These estimates indicate that with no change in the D.C. tax rates and with the addition of a commuter tax on private sectors earnings, total revenue from the income tax could rise from about $400 million collected in 1984 to about $800 million in 1988 and $880 million in 1990. Outlook for the Federal Payment From the earliest days of the nation, Congress recognized that the Federal Government had a special interest in the District of Columbia. This led to the acceptance of a special responsibility to aid in the underwriting of the costs of local government within the District. Over the years, essentially three types of arguments have been advanced to support the annual Federal payment to the District of Columbia Government. These can be classified as "the Federal interest", "the |