Mayor Vincent Gray really wants to make D.C. a tech hub, a place where businesses choose to settle over Maryland and Virginia.
He’s already granted $32 million of tax breaks to keep LivingSocial in the District. While the move was voted in by the council—and supported by local business advocates—some argued that the large tax break leaves the city’s interests unprotected.
Now Gray is trying to rally support for his latest tech incentive: A tax break for people who invest in D.C. tech.
The D.C. Council wasn’t originally keen on the idea, but Gray is trying to get the necessary votes to pass the measure by framing it as a way to keep investors in D.C. and prevent these companies from fleeing to Maryland and Virginia, which have more attractive tax structures, according to WBJ.
Specifically, Gray’s bill would give tax exemptions of up to $15 million over five years to tech companies that open in the District. It would also, according to the Washington Times, reduce the tax on capital gain from the sale of stock in a high-tech company to 3 percent if the investor has held the share for at least 24 months.
The D.C. Fiscal Policy Institute has been outspoken against the tax breaks, arguing that the tax break won’t increase revenue for the District.
The Technology Sector Enhancement Act would, among other things, set a three percent tax rate for wealthy investors, which as we have noted over the past few weeks is a lower tax rate than any working DC resident pays on her or his paycheck. Turning DC’s tax system upside down — letting some of our wealthiest residents pay the lowest tax rates — could only be justified if there were clear evidence that the city as a whole would be better off.
Claiming the tax cut would raise revenues is an effort by the mayor to suggest that we will all be better off. But tax cuts result in reduced revenues—not increases. And that’s exactly what the CFO states in the fiscal impact statement. It notes that some other provisions of the bill, which have nothing to do with the investor tax cut, would modestly increase revenues. This is where the mayor’s “positive fiscal impact” claim comes from.
The D.C. Council is set to vote on the tax break Wednesday.
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