COMMUTER (RECIPROCAL) INCOME TAX

Mr. BROYHILL. Let me make some points here very briefly and I want you to comment on them, Mr. Commissioner. I want the record to show the discussion of all these points regarding the proposed reciprocal tax.

The states of Virginia and Maryland will want to testify, Mr. Chairman, because I just heard from Governor Holton's office yesterday. They are compiling quite a brochure on this subject, and would like to present this testimony at the Committee's convenience.

I am sure the state of Maryland will want to do the same thing. Mr. CABELL. They may do that.

Mr. BROYHILL. I want to comment on your statement that the other states and many cities impose this tax. I agree that some of them do it but not when they have reciprocal agreements to the contrary. There is such a reciprocal arrangement whereby the states of Maryland and Virginia and the District of Columbia each have agreed not to tax the residents of the other two jurisdictions employed within its borders. And now one of the parties to this agreement, or understanding, or whatever you want to call it, needs additional revenue and now wants to renege.

So, this is where the change in accepted practice threatens to take place. There are instances where this type of income tax is imposed by communities and states on nonresident workers, but it is not imposed where there is a reciprocal agreement between the jurisdictions not to impose this form of taxation. Secondly, as was pointed out by Mr. Abernethy and other members of the Committee, the fact that Philadelphia, as Chicago imposes a non-resident income tax does not make it right for the District to do so, because this is the Federal city. You have said yourself, Mr. Commissioner, that there are instances when you can't do the same thing in this city that other cities do.

The District is similar to other cities in that we have human beings living here and they have human problems, but we are different from all other cities in that we were created as the nation's capital. Thus, we have a federal responsibility, and I am stressing "responsibility", as well as a federal interest and jurisdiction.

So, I think the two go hand in hand. I don't think that we have the liberty, or should have the liberty, of arbitrarily proposing a tax on American citizens coming into the federal city to work for their federal government as other municipalities may do. To that extent, there is a degree of difference.

Now, we could talk about other differences, in that it is the Federal government's responsibility to assist the District of Columbia in policing these various demonstrations, activities, and other such major events. These are activities aimed against the federal government and not the local government. So, we are comparing apples to oranges when we say that other cities do this and therefore we should do it also. Would you like to comment on that? I will go on then to ask you some specific questions.

Mr. WASHINGTON. Yes. First of all, Mr. Congressman, I want to say that during my administration, you have always been on the side of supporting adequate revenue for this city and I am very sure that we agree on goals for this city. In my opinion, what I am trying very hard to do is to maintain the nation's capital in its best possible posture as the nation's capital and as the capital of the free world. 62-938-71-pt. 1—12

I think that if we have slippage here in terms of our ability to serve our residents and this nation, then we certainly are in trouble everywhere. Consequently, we look to this source of income because of the burden that you can see that is on the citizens now. And we do pay substantially in taxes here. Eighty percent of the load is on the backs of the citizens here which I think is inordinate. What we are faced with in terms of putting a budget together is another $51 million. We tried to look for a source with a continuing basis.

This source is available to every jurisdiction in the nation. You mentioned some degrees of differences. In my opinion those are not substantive enough to suggest that this jurisdiction should be denied that particular right.

Now, with respect to the first question that you raised about an agreement. I have not found that particular agreement. Mr. BROYHILL. I beg your pardon?

TAX RECIPROCITY

Mr. WASHINGTON. I have not found an agreement-a reciprocal agreement.

Mr. BROYHILL. Well, Mr. Commissioner, there was an act of the Virginia General Assembly back in 1964, and Mr. Back you may recall this, at the request of the District Government eliminating the necessity of the District citizens filing income taxes in Virginia.

Mr. WASHINGTON. You see, Mr. Congressman, that is precisely the problem. That is a unilateral action coming from Virginia to us. Mr. BROYHILL. But the District of Columbia requested that act. Mr. WASHINGTON. What I thought you were referring to was something that occurred in 1915. I thought you mentioned that the day before yesterday.

Mr. BROYHILL. In the 1920's. It is the District-Virginia reciprocal agreement. I am giving you a specific instance in which the state legislature complied with a request of the District of Columbia Government in order to implement taxes in both communities more conveniently.

Mr. WASHINGTON. You see, in trying to check this historically, I went back and asked Mr. Back for assistance. We didn't have an income tax until 1939 and at that time, the point I was trying to get to, the District never had any form of reciprocity with the states. It wasn't until 1939 that we started income taxation in the District. I think that is correct from what I am advised.

Mr. BACK. That is correct.

Mr. WASHINGTON. And our law when originally enacted provided for taxation of residents only. Now, what we are trying to get, without looking at the money that is in the picture, we are saying that since Congress must approve our taxation of residents, we are left with no legal basis for reciprocity as to the other states whose basic law provides for taxation of all incomes earned within their borders. And, Mr. Congressman, bear with me in trying to get this in perspective, the taxing law here applies only to residents, we are asking-and at some point in time I think the jurisdiction ought to be recognized-we are asking for what other jurisdictions have and that is the right to tax all income earned within its borders.

Now, that is the concept behind this. Without getting into history, I was very much interested in what you had adduced the other day and I tried to find the genesis of it in the history of our two jurisdictions, because they are close, and I was only able to find the time of our income tax, that is, when it was instituted. And I did not find the reciprocal agreement although we may have an agreement.

Mr. BROYHILL. Well, Mr. Commissioner, as I understand your response to my comments, I agree with you that you have the responsibility of trying to raise revenues. I disagree with certain of your ideas, but I do respect your trying to meet your responsibilities. I do feel, however, that we have a little different situation here in the nation's capital, simply because this is the Federal city, in trying to imitate some of the procedures that other communities may use in raising

revenues.

You and I are in disagreement as to the fact that this was an agreement, or an understanding, or a practice, for the mutual convenience of the several states and communities involved. I called it an agreement, and you have said that we never had such an agreement to start with; but it has been practiced, at any rate. It has been practiced between Maryland and Virginia as well as between both of these states and the District of Columbia.

And I have a little note here that shows the action taken by the General Assembly back in 1964, effective for the tax year of 1963 (Title 15, Section 104-1). I will give this to Mr. Back. So that time, the state of Virginia, at the request of the District of Columbia Government, changed its policy extending back to the year 1928 which required District citizens working in Virginia to file income tax returns in Virginia for refunds, etc. This was changed in 1964 at the request of the District Government.

So whether you say this was an agreement or that it was not an agreement, there was activity and understanding between the states, and there were policies established for the convenience of the two states and the District, which you are now in the process of trying to change. We can call it an agreement or we can call it something else, but this is a practice that has been going on between these states and the District, and now you are attempting to change this because you need more revenue. I wanted to point out this one particular instance of an act by our legislature for the convenience of the District Government and at the request of the District Government.

Mr. WASHINGTON. Mr. Chairman, I think that act of 1964 I think that was an effort to avoid double taxation. No one suggests that we change that. What I was trying to get to is the fact that in 1939 my historians here indicate that is when our income tax was instituted. At that time it applied only to taxing residents of the District of Columbia.

The point about the reciprocal area and the authority which we seek is it's the same authority that exists in other jurisdictions, and this is where I don't see a difference, to tax income earned within that jurisdiction.

Mr. BROYHILL. And yet this comity exists between Maryland and Virginia, for example, Maryland has the authority to tax Virginia residents employed within its boundaries, and Virginia has the authority to tax Maryland residents. But they don't do it. They have a reciprocal agreement, whereby Virginia residents working in Maryland are

not subjected to Maryland income tax and vice versa. And the District of Columbia has been a party to that reciprocal agreement as far as those two states are concerned.

But we are not getting anywhere arguing about whether we have an agreement or don't have an agreement. We know what you are trying to do, and I am going to oppose that effort.

Mayor WASHINGTON. We both know what we are trying to do. Mr. BROYHILL. And I am going to try to get the necessary revenue for you from other sources. I will have some suggestions in a moment, if the Chairman will permit. I have taken longer than I intended to Mr. Chairman, but let's get down to some other inconsistencies.

SCOPE OF TAX PROPOSAL

If it is right to tax the earnings of non-resident persons who are working in the nation's capital, then it is right all the way, isn't it? Mr. WASHINGTON. When you say all of the way

Mr. BROYHILL. If it is equitable and fair to tax the salaries of non-residents working at the Department of Defense, the State Department, the Treasury Department, or Woodward and Lothrop's, it is fair to tax all of the people so employed is it not?

Mr. WASHINGTON. Yes, if you follow the concept that all jurisdictions have the authority

Mr. BROYHILL. What about the members of Congress and their staffs? Would you exempt anyone from this tax?

Mr. WASHINGTON. I think that the current situation is they are exempted. That is what you did in the beginning. You exempted them as soon as you found out about the Senator from Alabama

Mr. BROYHILL. Right. We exempted members of Congress. We did it by special law, and we exempted residents of the District of Columbia too.

Mayor WASHINGTON. We do too.

Mr. BROYHILL. And we exempted residents of the District of Columbia. Now, you are coming back and saying let's tax all nonresident people working within the District of Columbia, but exempt members of Congress. Why?

Mr. WASHINGTON. Well, for the same reason

Mr. BROYHILL. Now, if we are going to tax everybody living outside of the District and working in the city, members of Congress should be included. We should make no exceptions.

Mr. WASHINGTON. But you did make an exception in Virginia-Mr. BROYHILL. We did not make exceptions because we don't tax D.C. residents working in Virginia.

We don't tax people who have lived in Virginia less than 183 days and who pay taxes in other communities. We don't tax them. That is true for everyone. But why would you exempt members of Congress and their staffs? Are they exempted?

Mr. WASHINGTON. No.

Mr. BROYHILL. You are taxing all the members of Congress?

Mr. WASHINGTON. I think we do

Mr. BROYHILL. Who would be exempted? Would the President of the United States be exempted?

Mr. BACK. Yes.

Mr. BROYHILL. He lives here.

Mr. BACK. All elected officials of the U.S. Government. This is present law without regard to this bill that is before the Committee. There are three groups exempted. The first is the elected officials of the United States Government, that is the members of Congress and the President and the Vice President. The second group is the Congressional employees to the extent that the employee is from the Congressman's district and serves on his immediate staff.

Mr. BROYHILL. But he can live in either Virginia or Maryland, or in the District of Columbia, and work for the Congress and not pay local taxes as long as he is from the Congressman's home district.

Mr. BACK. We are only talking about District taxes. I can't speak for Maryland or Virginia.

Mr. BROYHILL. I am talking about income taxes.

Mr. BACK. If he lives in your district and he is a member of your staff and is from your jurisdiction and he lives in the District of Columbia, he would be exempted from our income tax.

Mr. BROYHILL. All right. Why would he be exempted if his next door neighbor works for the State Department and is not exempted? Mr. BACK. There is no reason except that is the way the law is. Mr. BROYHILL. Now, I asked a question.

Mr. CABELL. If the gentleman will yield here, I expect that the employees of the State Department have a better chance of longevity than the employee of Congress.

Mr. BROYHILL. The reason I am asking the question is that the Commissioner has cited the fairness and the equity of this type of taxation; and if it is fair and equitable, then it really should be fair and equitable across the board. And I would think that a Congressman who would vote to impose an income tax to the District of Columbia on one of his constituents because he happened to work for the federal government, and then exempt himself or his personal staff from that tax, would be hard put for an explanation.

So, I would insist, Mr. Commissioner, and I would urge you also to insist in fairness and equity, because we have used that word quite a bit here and all of us want to be fair, that if we are going to tax the incomes of the non-residents who work in the District of Columbia, regardless of the fact that they are working for the federal government in the District of Columbia, then all such non-residents be treated equally. If the District of Columbia has a revenue problem, then why should the President be exempted, or members of Congress, or their staffs? Why should any elected or appointed official be exempted?

Why should we discriminate against the person who works for the State Department or the Treasury Department, or on Capitol hill? While we are talking about fairness, consistency, and equity, let's go straight up and down the line.

Mr. WASHINGTON. Mr. Congressman, you realize that you are talking about an act of Congress and not something that the District has imposed and which it has also suggested that the Congress change. I wasn't sure whether you were suggesting that you might introduce such an amendment to tax the President.

Mr. BROYHILL. I am going to do two things, Mr. Commissioner. I am going to fight this reciprocal tax proposal, and if I fail in that, which I doubt, I am going to amend the proposal so that every member of Congress is going to have the chance to walk up the aisle and vote