Volume 1 - Executive Summary - Office of the Chief Financial Officer

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The tax expenditure budget aims to subject tax preferences to the same scrutiny as direct appropriations. The itemization of tax expenditures provides policymakers with a more complete picture of how the government uses its resources and should help officials consider ways to reallocate resources more effectively. For example, if ineffective or outmoded tax expenditures were eliminated, policymakers could free up resources to expand high-priority direct spending programs or cut tax rates. This exercise is designed to provide policymakers with the information they need about tax expenditures to make sound fiscal policy decisions. Structure of the Tax Expenditure Budget The tax expenditure budget for FY 2012 – FY 2015 is presented in Table 4-19 at the end of this section. The table classifies each tax expenditure according to the type of tax and provides the statutory authority, year of enactment, policy area, and estimated revenue loss for fiscal years 2012 through 2015. In addition, an expanded version of the tax expenditure budget which describes the purpose, structure, and eligibility criteria for each provision is available from the Office of Revenue Analysis (ORA) and will be posted on the CFO’s Internet site at www.cfo.dc.gov. All of the federal conformity expenditures flow through to the District’s individual and business income taxes; the federal government does not impose property taxes or sales taxes. By conforming to the federal definition of adjusted gross income (with several exceptions), the District thereby adopts most of the exclusions and deductions from income that are part of the federal personal and corporate income tax systems. Most other states with an income tax follow a similar practice. The provisions in the tax expenditure budget are classified by one of the following types: • exclusions, which are items that are not considered part of a taxpayer’s gross income for tax purposes, even though they increase his or her resources or wealth. Exclusions do not appear on the tax form but still cause adjusted gross income to be lower than it otherwise would be. Employer contributions to health and retirement plans are examples. • exemptions, which are per-person reductions in taxable income that taxpayers can claim because of their status or circumstances (such as being a senior citizen). • adjustments, which are reductions in taxable income that are available to all tax filers who meet certain criteria, regardless of whether or net they itemize their deductions. Adjustments are also known as “above-the-line” deductions and are shown on the tax form. • deductions, which are reductions to taxable income that must be itemized on the tax form. This option is not available to those who choose the standard deduction. • subtractions, which are reductions from federal adjusted gross income that are used to derive District of Columbia adjusted gross income. Subtractions reflect income that is taxed by the federal government but not by the D.C. government. • credits, which reduce tax liability directly instead of reducing the amount of income subject to taxation. Credits can be refundable (if the amount of the credit exceeds tax liability, the taxpayer gets the difference as a direct refund) or non-refundable (the amount of the credit cannot exceed tax liability). • abatements, which are reductions in tax liability (typically real property tax liability) that are often applied on a percentage basis or through a negotiated process. • deferrals, which delay the recognition of income to a future year or years. Because they shift the timing of tax payments, deferrals function like interest-free loans to the taxpayer. • rebates, which are refunds provided to qualifying taxpayers as a separate payment (as contrasted with tax credits that are first applied as a reduction of tax liability). • special rules, which is a category used for federal tax expenditures that involve blended tax rates or special accounting procedures and do not fit neatly into any other category. Revenue 4-48 FY 2013 Proposed Budget and Financial Plan
Each tax expenditure was also classified by one of 17 policy or program areas, such as education, health, social policy, and transportation. The policy areas largely mirror the categories used by the Joint Committee on Taxation (JCT) of the U.S. Congress, in order to facilitate comparisons. Nevertheless, the categories were modified and expanded in several cases to make them more relevant to the District of Columbia. For example, the “business and commerce” category used by the JCT was changed to “economic development” to reflect a policy focus of particular importance in the District, and a “public safety” category was added (there are no public safety tax expenditures at the federal level). The four policy areas with the largest number of federal conformity provisions are economic development (27 tax expenditures), income security (15), education (12), and health (11). Many federal tax expenditures that are classified under economic development concern the definition or timing of different types of business income, expenses, reserves, and depreciation. The four policy areas with the largest number of local tax expenditures are housing (26 tax expenditures), economic development (24), and social policy (14), and income security (12). Important Caveats A particular caution about the interpretation of the revenue loss estimates in the tax expenditure budget deserves emphasis. The forgone revenue estimate is intended to measure what is being “spent” through the tax system, or the amount of relief or subsidy provided through that provision. Nevertheless, the forgone revenue is not identical to the amount of revenue that could be gained by repealing the tax expenditure. There are three main reasons why: • First, the estimates of revenue loss are “static” and therefore do not reflect behavioral changes that might occur if a tax expenditure were repealed. For example, if the District eliminated the local supplement to the federal earned income tax credit, people might reduce their hours of work and their income tax payments could also drop. • Second, the revenue loss for each tax expenditure is estimated independently, which does not account for interaction effects among different tax provisions. For example, D.C. law establishes that taxpayers may not claim both the local supplement to the earned income tax credit and the D.C. low-income credit. If the local earned income credit were abolished, more taxpayers might then claim the low-income credit. • Third, the D.C. government might not be able to collect the full amount owed for administrative reasons. For example, if the District disallowed for local income tax purposes an exemption or exclusion that is allowed on the federal income tax (a process known as “decoupling”), the District would probably not recoup all of the forgone revenue. The reason is that taxpayers would have to make a separate calculation on their District income taxes to add back the dollars that had been excluded, and compliance with this requirement would not be universal (nor would audits detect all violations). Because of the factors described above, the total forgone revenue from tax expenditures is not equivalent to the sum of the individual estimates of forgone revenue. The U.S. Government Accountability Office states that: “While sufficiently reliable as a gauge of general magnitude, the sum of the individual revenue loss estimates has important limitations in that any interactions between tax expenditures will not be reflected in the sum … Thus, the revenue loss from all or several tax expenditures together might be greater or less than the sum of the estimated revenue losses from the individual tax expenditures, and no measure of the size or the magnitude of these potential interactions or behavioral responses to all or several tax expenditures is available.” 4 4 U.S. Government Accountability Office, Government Performance and Accountability: Tax Expenditures Represent a Substantial Federal Commitment and Need to Be Reexamined (GAO-05-960, September 2005), p. 3. FY 2013 Proposed Budget and Financial Plan Revenue 4-49
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THE GOVERNMENT OF THE DISTRICT OF C
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The Government Finance Officers Ass
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Office of the Chief Financial Offic
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Council of the District of Columbia
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GOVERNMENT OF THE DISTRICT OF COLUM
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Volumes Bound Separately Volume 2 -
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How to Read the Budget and Financia
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Operating Appendices (Volumes 4 and
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FY 2013 Proposed Budget Changes The
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• Appendices that provide support
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This table presents the agency's to
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This indicates the specific program
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The FY 2013 Proposed Budget Changes
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Agency performance measures describ
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appropriation titles are the agenci
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Figure 1-1 Where the Money Comes Fr
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Table 1-2a Local Funds Expenditure
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Table 1-4 Local Funds Proposed FTEs
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Table 1-5 Major Gross Funds FTE Cha
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Strategic Budgeting 2 The District
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Information Systems In FY 2004, the
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Revenues 2. Taxes. This category in
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7. Interfund Transfers. This line i
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Expenditures (by Appropriation Titl
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43. Contingency Cash Reserve Balanc
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Table 3-1 (Continued) FY 2013 - 201
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Table 3-3 FY 2013 - FY 2016 General
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Page 63 and 64: Revenue 4 TOTAL GENERAL FUND TAX RE
Page 65 and 66: The Economic Outlook Despite a brig
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Page 75 and 76: Table 4-7 Selective Sales and Excis
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Page 79 and 80: Table 4-10 Other Tax Revenue, Fisca
Page 81 and 82: Property tax changes: Repeal subjec
Page 83 and 84: Table 4-12 (cont.) Policy Proposals
Page 85 and 86: Implement a motor fuel quality test
Page 87 and 88: Table 4-13 (cont) Percentage Change
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Page 91 and 92: Table 4-15 (Cont.) General Purpose
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Page 95 and 96: Table 4-17: Special Purpose (O-type
Page 105 and 106: PART A — GENERAL FUND TAXES FY 20
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Page 109: Tax Expenditure Budget FY 2012 - FY
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Page 159 and 160: Appendix A: D.C. Comprehensive Fina
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General Fund expenditures) for all
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Background: The timely deposit of m
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of cash that is not needed to fund
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• Computer hardware system costs
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Background: The District is require
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of the District of Columbia). Amoun
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Any existing Special Purpose Revenu
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the availability of funds is made,
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Appendix B Grant Match and Maintena
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Reporting of Grant Match and Mainte
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B. Economic Development and Regulat
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D. Public Education System (Note: U
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Human Support Services (Dollars in
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G. Financing and Other One agency i
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Intra-District Medicaid Payments (P
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Appendix C Basis of Budgeting and A
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Appendix D: Glossary of Budget Term
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Arbitrage - The simultaneous buying
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Current Services Funding Level (CSF
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Key Result Measures - A set of resu
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Special Purpose Revenue - Funds use
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Appendix E Current Services Funding
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Other Adjustments The following are
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Government of the District of Colum
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AppropriationTitle (Thousands of Do
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AppropriationTitle (Thousands of Do
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AppropriationTitle Agy Cde Governme
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A BILL ---------- IN THE COUNCIL OF
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$11,500,000, to remain available un
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TITLE III--DISTRICT OF COLUMBIA FUN
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other funds, and $9,565,000 from fu
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necessary for reimbursement to the
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Board of Trustees of the University
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from local funds, $26,403,000 from
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contingency reserve fund under sect
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Unemployment Insurance Trust Fund F
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District of Columbia government sub
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corporations, institutions, and org
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District, RLA, or any entity of the
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(44) The play field portion of Rese
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(b) Every remote-vendor that does n
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Council (or Act of Congress, in the
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(a) Section 602(c)(1) of the Distri
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Volume 1 - Executive Summary - Office of the Chief Financial Officer

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