Councilmember Silverman Statement on New Tax Credit for District Residents
*Download a two-page explainer of this bill here.
Today, along with Ward 7 Councilmember Vincent Gray, Ward 6 Councilmember Charles Allen, Ward 1 Councilmember Brianne Nadeau, and my at-large colleagues David Grosso, Robert White, and Anita Bonds, I am introducing the District of Columbia Education Charitable Donations Amendment Act of 2018. The bill does two simple things, but it will have a big, positive economic impact on our residents and our city.
First, it creates a new fund for residents to donate to support our public schools. Second, it creates a new tax credit to incentivize donations to this fund. These two steps will both support public education in the District and potentially help more than a hundred thousand income tax filers in the District avoid a new penalty from the Republican tax bill just signed into law.
Under the new federal tax law, taxpayers can only deduct $10,000 in state and local taxes on their federal income tax returns. That sounds like a lot of money, but more than 130,000 DC filers deduct an average of $17,000 in state taxes from their federal returns each year.
What does this mean? The new tax law would not allow these filers to deduct on average $7,000 of DC income and property taxes on their federal income taxes, making their taxable income higher. This is why more than 11,000 DC residents rushed to pre-pay 2018 property taxes, so the payment could be included in 2017 deductions before the new rules took effect.
Taxes are an important part of running the District government, and support everything from our schools to keeping our streets paved. But the new federal cap on deductions targets our residents for simply living in the District and wanting a government that makes strong investments in education, public safety, and our residents’ health care.
That is why I’m introducing this legislation today. The bill would help our residents offset the new federally-imposed cap on state and local taxes. Residents can donate to the new Education Investment Fund, which will support the District’s public schools and receive a nonrefundable credit on their District tax returns in exchange for the donation. They could then deduct the donation on their federal taxes, as they were previously able to do with the state taxes that they paid.
District residents will be better off because they will have an additional charitable deduction on the federal returns, and the District will benefit from the charitable donation to our schools. It’s a win-win for the District and smart progressive tax policy.
This approach, though not identical, is similar to bills that have been introduced by Democratic state leaders in neighboring Maryland, as well as California and New Jersey. If DC residents watching are interested, I am happy to email you a one-page explainer on the bill.