Testimony to the DC Council Committee of the Whole on Revenue Proposals
Joe Bishop-Henchman
October 16, 2026
Chairman Mendelson and Members of the Council,
Thank you for the opportunity to testify today. My name is Joe Bishop-Henchman, and I am Executive Vice President of National Taxpayers Union Foundation, where we help states design better tax codes and engage in litigation against illegal tax actions. We have submitted 50 pages of material, but I would like to use my speaking time to emphasize six facts from our submission:
1. DC is #1 on progressivity. ITEP’s Who Pays ranks the states on progressive tax systems and DC is #1. DC can always do more just as DC can always do more to be competitive or to make taxes simpler to comply with, but it is a fact that right now DC is #1.
2. On the income tax, again DC is #1. The U.S. Census tracks state and local income tax collections per capita, and DC raises more than anywhere else, even New York. The Net Investment Income Tax (NIIT) wealth proceeds proposal, which would be an additional income tax, would shadow an existing federal tax, but only Minnesota does it. However, no one should think of it as a 3% tax. Together with the existing income tax, it will be a 13.75% DC tax on this income. Virginia taxes it at 5.75%, so that difference—13.75% vs 5.75%—is why there is discussion of outmigration, which often materializes not just as tax flight but as a slowdown in growth as people direct further investment and business activity to other jurisdictions. This income is also very volatile, which is a conflict with the need for stable additional revenue. California, which relies very heavily on this income source, has done thorough studies on this, so if you are going to proceed with a NIIT you may wish to dedicate it for one-time capital needs instead of recurring programs.
3. Migration. According to IRS data, DC is in an outmigration situation, with more people moving out than moving in, on average every 3 hr and 24 minutes. We calculate the total revenue impact of this outmigration to be $179 million a year reduction to DC’s budget. I’m the first to admit taxes are not the only contributing factor to outmigration, and I have an article in the Harvard Journal on Legislation reciting the scholarly evidence. It’s taxes, it’s housing, it’s affordability, it’s jobs, it’s crime, it’s services, and services in relation to the taxes paid. The IRS data also shows that the outmigration rate is more severe for DC for those who make $200,000 or more a year.
4. There are two taxes where DC collects less than the average state: the sales tax and the property tax. These are tried-and-true broad based taxes that most people pay. If people truly care about preserving spending programs, if they are vital, they should have a broad base of fiscal support where everyone chips in. On the last panel, one of the BAT supporters said they support the tax but want their organization carved out from it. That’s the kind of thing people hate about politics. If everyone should pay, that means everyone.
5. On the land value tax, essentially every economist and tax expert will say this is a good idea. But not a lot of places do it. What you will want to nail down is how to do the valuation. There are 6 major ways to do it and they’re all confusing and will produce different results. There is a land value assessment on DC property tax bills, but it’s just an arbitrary 30% of the total, it’s not a real calculation of the land’s value. Anyone who has been involved in the property appraisal appeals process knows this will not be easy. Also, even a revenue neutral land value tax will mean very different tax burdens for different properties. A poker game is revenue neutral, as a whole. Commercial property might pay less but large lot family homes would pay more.
6. The proposed Business Activity Tax (BAT). First, someone said Michigan has this tax, but it does not: lawmakers repealed it a decade ago after four years of having it. New Hampshire does have a similar Business Enterprise Tax (BET), but at a 0.55% rate not 1.4% or 2%, and New Hampshire also doesn’t have a sales tax at all or an income tax at all. It is a very precariously designed tax: it is a tax designed not to violate the Bishop decision while taxing the dollars that Bishop said DC can’t tax. There are many ways it can unravel. It’s a tax on all businesses, but everyone will say well not my business, not my unprofitable company, not my non-profit. It’s a tax on gross receipts minus rent and purchases and capital investment and royalties, and you pull out any of those, it’s very different. It’s a tax that credits against the franchise tax and UBT, and you remove those elements, it’s very different. It will produce revenue that could revert the payroll tax to 0.26% or generate money for new programs, but you can’t use the same dollar twice. It’s vulnerable to a legal challenge or flashpoint risk with other states or Congress. There is also risk of a BAT being layered on top of, rather than replacing, the franchise tax and the commercial property tax and the UBT and the TPP tax and the ballpark/stadium fee and the payroll tax.
Councilmember Silverman invited other ideas beyond those in front of you today. The income tax brackets are not inflation adjusted and they should be. The vacancy tax only applies if the whole building is vacant but instead should apply to vacant ground floor spaces. The Child Tax Credit is a proven anti-poverty tool, more so than many spending programs. And DC has a goofy marriage penalty in its income tax that requires married filers to fill out an extra form to avoid accidentally paying twice the tax. No other state does this. And it does trick people, the Tax Revision Commission estimated it would cost $51 million to fix. That’s $51 million people don’t owe but they accidentally pay because the tax forms are confusing.
I will conclude with something I said to the Tax Revision Commission. Be cautious about proposals that no or few other states have adopted. Tried and true methods of taxation are tried and true for a reason. People always email me thinking they’ve discovered some new way to raise lots of revenue without any negative economic effects. Alas, those silver bullets do not exist. Those ideas may not be practical for administrative reasons, or abandoned due to harmful economic distortions, or unlawful or unconstitutional or just plain unwise. Ask about every proposal: how many other U.S. states do this right now? If the answer is zero, that’s one signal that there are probably more cons than pros.
Thank you.