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

Methodology
Summary statistics from the D.C. tax returns were an important source of data for the tax expenditure budget and
were particularly useful for estimating forgone revenue from local income tax provisions. Unfortunately, in many instances
tax expenditures cannot be estimated from available tax data because they involve income, property, or economic
activity that is not taxed, and the relevant information is never reported to the Office of Tax and Revenue
(OTR). Therefore, ORA often used data from federal sources (such as the Census Bureau and the Bureau of Economic
Analysis) and D.C. government agencies to estimate the number of beneficiaries and the revenue lost from
certain tax expenditures.
OTR generally lacks information on federal income tax expenditures because the amounts excluded and deducted
are simply transferred to the local tax forms instead of being reported directly. Therefore, for the sake of consistency,
ORA’s federal conformity estimates represent a District of Columbia portion of the nationwide tax
expenditure estimates prepared by the JCT. 5 ORA estimated the D.C. portion by multiplying two fractions: (1) a
ratio representing D.C. share of the relevant activity or population, such as D.C. taxable income divided by national
taxable income, and (2) a ratio representing the D.C. average tax rate divided by the U.S. average tax rate.
Because of the methodological challenges and data issues, it is important to view the revenue estimates as indicating
orders of magnitude rather than providing precise point estimates.
The following is a summary of key terms that are used in the summary table:
• too small: refers to a federal tax expenditure with forgone revenue that was less than $50 million annually, according
to the JCT. The revenue loss to the District from conforming to the federal policy would be very close
to zero.
• sunset: means that there will be no revenue loss because the provision has expired.
• minimal: refers to a local tax expenditure for which precise data are lacking, but the forgone revenue is estimated
to be less than $50,000 per year.
• no estimate: refers to a local tax expenditure for which precise data are lacking, but for which the revenue loss
might not be minimal. In addition, “no estimate” refers to cases in which calculations cannot be made because
there are fewer than three claimants. In order to protect the confidentiality of individual tax records, U.S. Internal
Revenue Service rules provide that, “No statistical tabulations may be released with cells containing data from
fewer than three returns.”
5 In some cases, ORA used tax expenditure estimates from the U.S. Department of the Treasury when data from the Joint Committee on Taxation were not available.
Revenue
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FY 2013 Proposed Budget and Financial Plan