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Sense of the Council in Support of Litigation Challenging the Constitutionality of the Congressional Prohibition on the District’s Ability to Tax All Income Earned Within District Borders Emergency Declaration Resolution of 2003
PR 13-369

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Chairman Linda W. Cropp
Councilmember Carol Schwartz
Councilmember Harold Brazil
Councilmember Phil Mendelson
Councilmember David A. Catania
Councilmember Jim Graham
Councilmember Jack Evans
Councilmember Kathleen Patterson
Councilmember Adrian Fenty
Councilmember Vincent B. Orange, Sr.
Councilmember Sharon Ambrose
Councilmember Kevin P. Chavous
Councilmember Sandy Allen 


To declare, on an emergency basis, the sense of the Council that there exists in the District's  fiscal system a structural imbalance making it impossible for the District to provide average levels of service without overtaxing its residents, that this structural imbalance is caused in part by a federal law prohibiting the District from taxing non-resident income, and that the Council should join as a party in a lawsuit challenging the constitutionality of the federal law. 

RESOLVED, BY THE COUNCIL OF THE DISTRICT OF COLUMBIA, That this resolution may be cited as the "Sense of the Council in Support of Litigation Challenging the Constitutionality of the Congressional Prohibition on the District's Ability to Tax All Income Earned Within District Borders Emergency Resolution of 2003". 

Sec. 2. The Council finds that:

(1) The United States General Accounting Office ("GAO"), has concluded after extensive study, in a report issued in May 2003 that a "structural imbalance" exists in the District's fiscal system, which requires the District to overtax its citizens in order to provide even average services to those who live and work here.

(2) This is also the conclusion recently reached by independent experts at the American Economics Group, Inc., after a similarly extensive study.

(3) According to the GAO, "a fiscal system is said to have a structural imbalance if it is unable to finance an average ... level of services by taxing its funding capacity at average rates."

(4) The GAO concluded that there is a "substantial structural deficit" suffered by the District. Its lowest estimate for this deficit is $470 million and its highest is $1.1 billion, each year. This insurmountable structural imbalance exists after taking account of all "federal grants" to the District each year.

(5) The GAO states that the "existence of this structural deficit means that even if the District's services were managed efficiently, the District would have to impose above-average tax burdens just to provide an average level of services" and that "management improvements will not offset the underlying structural imbalance because it is caused by factors beyond the direct control of District officials."

(6) As a result of this structural imbalance, the District has been forced to overtax its residents in order to raise enough revenue just to provide average levels of service to people who live and work in the District. Simultaneously, the structural imbalance has prevented the District from making badly needed capital expenditures to maintain and improve its infrastructure.

(7) The structural imbalance is caused at least in part by a statute enacted by the United States Congress that prohibits the District -- and only the District -- from taxing income earned within its borders by non-residents.

(8) The appropriate cure for the structural imbalance would be a tax on income earned by non-residents in the District. Depending on its rate, such a tax would close part or all of the imbalance.

(9) It is a universal principle of taxation that all income may be taxed where it is earned. Each of the forty-one States with income taxes imposes them on residents and non-residents alike. Only the District has been prohibited by the Congress from doing so, in section 602 of the Home Rule Act (the "Prohibition"). 

(10) Non-residents impose significant costs on government services, and the District should have the universal right to require these non-residents who use its services to make some fair contribution to those costs. 

(11) Over 60 percent of income earned in the District is earned by non-residents. A tax on non-resident income would permit the District to: 

(a) Reduce taxes on its residents; and 

(b) Raise the revenue required to provide improved services to residents and non-residents alike. Non-residents would be entitled to a credit against their home State returns for non-resident taxes paid to the District.

(12) But for the Prohibition, the Council would enact a law to reduce income tax rates on its overtaxed residents and impose a fair and reasonable income tax on non-residents.

(14) The Prohibition discriminates in favor of residents of States that have voting representation in Congress and against residents of the District who lack such 8 representation.

(15) Taxation without representation has always been suspect in this country, beginning with our Declaration of Independence. Tax laws which discriminate against people who are unrepresented in the taxing legislature are even more suspect.

Sec. 3. It is the sense of the Council that the Congressional Prohibition against a non-resident income tax in the District is a discriminatory tax law which has resulted in a substantial structural imbalance in the District and the overtaxing of District residents, and that this discrimination cannot be justified and must be promptly rectified. It is also the sense of the Council that while it will continue to work diligently in support of efforts to persuade Congress to repeal the Prohibition or to find other means to compensate the District for the revenue lost by the Prohibition, the Council will join in a lawsuit seeking a declaration that the Prohibition is unconstitutional. 

Sec. 4. This resolution shall take effect immediately. 

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