WASHINGTON — District of Columbia residents holding municipal bonds issued outside of the city are about to lose their local income tax exemption — a perk killed by council members in an attempt to raise revenues and stave off higher taxes.
The District Council on Wednesday unanimously passed a fiscal 2012 budget that closes a $322 million shortfall. The budget amendment to eliminate the tax-exempt interest on bonds from outside the district passed by a vote of 7 to 6, while an amendment to create a new, 8.9% income tax for earners making more than $200,000 per year failed by vote of 8 to 5.
A final vote on the budget is scheduled for June 14.
If the spending plan becomes law, only Indiana will continue to allow interest on bonds issued outside of the state to be exempt from Indiana income taxes.
The idea to repeal the tax exemption was introduced by council member Vincent Orange, who won an at-large election in April. Orange convinced council chairman Kwame Brown to include the repeal in the budget as one way to raise revenues and ward off a tax increase, sources said.
By eliminating the exemption, the district could raise $30 million a year, according to a spokesperson for Natwar Gandhi, the district’s chief financial officer.
The idea has been considered before in the city. In 2004, the provision was introduced but eventually dropped.
Then-Mayor Anthony Williams had also introduced a similar plan in 2002, but that wasdropped following a public outcry.
The district’s top income-tax bracket is 9.3% for residents making $30,000 or more.
