How Do DC Tax Burdens Compare to Those in the Largest City in Each State?

The Office of Revenue Analysis annually compares DC’s tax burdens to those of the largest city in each state. The recently released Tax Rates and Tax Burdens 2014: A Nationwide Comparison calculates income, property, sales, and auto tax burdens for a hypothetical family of three at five different income levels across these 51 jurisdictions.

Because the District levies taxes typically employed by both state and local governments, the study compares the DC’s tax burdens to the combined state and local tax burdens the family would face if it lived in the largest city in each state.

Main Findings:

Looking at the combined burden of all four taxes by income level, DC tax burdens were lower than the average of the other 51 jurisdictions for families earning $50,000, $75,000, $100,000 or $150,000 a year. For the lowest income family earning $25,000, the District’s overall burden was higher than the average across the 51 cities.  At the lowest income level, DC’s lower than average income tax burden (with the family receiving an Earned Income Tax Credit refund) is offset by the high cost of rent, and the resulting high burden of the property tax implicitly included in rental prices.

The map below presents the combined tax burdens (as a % of income) of all four tax types added together for a family earning $25,000 a year.

2014 Tax Burdens, by Tax Type and Income Level

(Click to interact with the map and filter by tax type and income level.)

2014 Tax Burdens Map

 

Income tax:

Forty three states levy an income tax, and 10 of the cities surveyed in this study have an additional local income tax. The District’s 2014 income tax structure included four rates, with the highest rate of 8.95 percent applying to income over $350,000. DC’s income tax burden was a negative $732 for a family earning $25,000, meaning that the family would receive a refund through the Earned Income Tax Credit; this was below the average for the cities and states that had an income tax. The District’s income tax burden was slightly higher than the average for families at the other four income levels, resulting from its progressive structure.

2014 Income Tax Burdens for All Income Levels, $

 (Click to interact with the chart)
2014 Income Tax Burdens
Note: Negative bars (which can’t be seen in this snapshot) represent tax refunds due to state Earned Income Tax Credits. Burlington, VT’s negative burden also includes a renter’s rebate through the income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have an income tax. Tennessee and New Hampshire tax interest and dividend income but the exemptions are high enough to eliminate individual income taxes at all income levels used in the study.

Property tax:

All 51 cities in this study levy a tax on real property located within the city, with effective tax rates ranging from a high of $3.44 per $100 of assessed value in Detroit, Michigan, to $0.02 per $100 of assessed value in Jackson, Mississippi.

In 2014, the District taxed residential property at a rate of $0.85 per $100 of assessed value; and offered a $70,200 homestead deduction for owner-occupied residences. DC’s property tax burdens were below the 51-city average for the top four income levels (all of those assumed to own homes). However, for the family earning $25,000 a year and assumed to be renting, the District’s property tax burden was the second highest of all the cities. The high property tax burden for a renter in DC is due to the assumed property tax implicitly included in rental prices.

2014 Property Tax Burdens for All Income Levels

(Click to interact with the chart)

2014 Property Tax Burdens
Note: the methodology for calculating burdens for the $25,000/year income earning family differs from the calculations for the other four income groups.

Sales tax:

Forty six of the 51 cities studied are subject to some form of sales and use tax. The highest combined (state + local) sales tax rates are found in Los Angeles, California, and Columbia, South Carolina, both at 10 percent total. The District’s general sales tax of 5.75 percent is the fourth lowest of all 51 cities, when looking at total state and local sales tax rates combined. Consequently, sales tax burdens in DC were lower than the 51-city average at all five income levels.

(Click here to view all sales tax rates used in this study.)

Auto tax:

Residents in all 51 cities studied pay some type of automobile registration fee or tax–usually either a flat rate per vehicle or by weight of vehicle. In addition, personal property taxes on automobiles are levied in 13 of the cities.

The District’s annual auto registration fees range from $72 to $155, depending on vehicle weight, and are among the highest in the study; however, DC does not charge an annual excise tax or personal property tax on automobiles. District gas tax rates were 23.5 cents per gallon–also the median for all 51 cities–and DC auto tax burdens were below the 51-city average for all five income levels.

See the full report for more results and a description of the methodology.

What exactly is this data? We calculated the tax burdens using housing value data from the U.S. Census Bureau’s American Community Survey; income profile data from the Internal Revenue Service’s DC Statistics of Income; consumption information from the Bureau of Labor Statistics’ Consumer Expenditure Survey, and auto data from the National Automobile Dealers Association Used Car Guide, the Environmental Protection Agency,  and the Department of Energy. Tax rate data were obtained from state and local tax officials, state and local government web sites, and third party sources such as the Federation of Tax Administrators and CCH/Wolters Kluwer.

3 thoughts on “How Do DC Tax Burdens Compare to Those in the Largest City in Each State?

  1. This is such a great blog! Thank you for sharing interesting information.

    Have you ever thought about producing one which would track total retail sales by month, so that we could see if people in DC shop more in February or March? It would be amazing to get the numbers by month AND by neighborhood.

    Please consider this – we could sure use the information in the DC Main Streets program.

    LAUREN ADKINS, Manager, Neighborhood Revitalization
    DC Department of Small and Local Business Development
    441 4th Street, NW • Suite 850N • Washington, DC 20001
    Phone: 202-727-3900 | Direct: 202-674-2251 | lauren.adkins@dc.gov
    url: http://www.dslbd.dc.gov
    Twitter: @smallbizdc

    Learn the basics of life-saving hands only CPR in 20 minutes. Visit the DC FEMS Hands on Hearts campaign at http://handsonhearts.dc.gov to sign up for existing classes or email hands.onhearts@dc.gov to schedule a class for your office or organization.​

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  2. I would also like to know what would the change of revenue be for DC if it were on par with the average nationally for all categories–and if its average overall was *at least* the average nationally, if not higher, but on a progressive scale.

    For instance, we have seen an explosion of real estate for higher-income people in the last decade in DC. But that real estate is taxed at levels below the national average, even as people with smaller incomes face property tax burdens that are proportionally greater.

    Thus, it would seem to be in the interests of public policy in DC to have a property tax at least as progressive as its income tax–and certainly on par with a national average, which would increase revenues and ease the burden on lower income residents.

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