ous organizations by special act of Congress not including those which would have been covered by the general exemptions, cover property with an assessed valuation of over $73 million, and involve a loss to the District of over $24 million, based on the 1971 property assessments and tax rates.

CONFORM D.C. INCOME TAX TO FEDERAL

Again, since 1967, I have proposed the conformation of the District of Columbia income tax to the Federal income tax. The fact that this non-controversial measure doesn't see the light of day illustrates some of the difficulties of governing our city without home rule.

Under present conditions a taxpayer must compute his District of Columbia income tax in a manner different than his Federal tax. Such a system increases the chance of errors because of the diverse standards employed and increases the burden of enforcement. Enforcement could be substantially enhanced at a reduction of cost if a taxpayer's liabilities were computed as a specific percentage of Federal taxable income. The bill before you calls for a percentage of Federal income tax but a percentage based on Federal taxable income is preferable.

INCORPORATION OF PROFESSIONALS

My fourth issue is a bill pending before you that is one of the most special purposes piece of legislation that has ever disgraced these halls. Certain professional groups normally in the past operating as unincorporated businesses wish to incorporate and are asking for exemption from the District of Columbia corporation tax. Now Washington's major industry after government and tourism is the practice of law, followed by other professions. Surely these responsible citizens do not wish to avoid their modest contribution to supporting the community in which they earn such handsome livelihoods. If butchers, bakers and candlestick makers pay their share of taxes, please do not allow dis tinguished neighbors to forfeit their obligations.

COMMUTER (RECIPROCAL) INCOME TAX

I would now like to address myself to the main reason for my appearance here today. The proposed reciprocal income tax. From the time that I first became involved in District Government, I have been concerned with the revenue lost to the District because of the "should-be❞ taxpayers who leave the city and its problems in the evening, to return to the suburbs.

As a businessman whose operations extend throughout the Washington metropolitan area, I am well aware that our suburbs are not free from their own problems and needs for revenue. I do not suggest that the adoption of the reciprocal income tax is a solution to all of the District's problems. On the other hand, balancing all of the factors in my mind, I concluded a long time ago that those who work in the District should bear a fair share of providing governmental services to the District. This is not being done under present law which exempts nonresidents from payment of one of the principal sources of District revenue, the personal income tax. In the past, I supported, and the District proposed, the adoption of a commuter tax. It is my opinion.

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that the proposed reciprocal income tax is a more equitable solution, and one which provides increased additional revenue to the District. The reciprocal income tax is based on the ability to pay rather than on a flat rate, a more equitable system. Furthermore, the reciprocal income tax will cover all types of income earned in the District, rather than just salaries and wages.

Others have testified with respect to the economic and technical aspects of this legislation in a much more eloquent and authoritative manner than I can. I am supported in my belief as to the equities of the reciprocal income tax by the fact that most of the other tax jurisdictions in this country and throughout the world impose tax based on the source of the income, requiring the place of residence to give credits for such taxes. I am fully aware that giving these credits will result in a shift of tax revenue primarily from Virginia and Maryland to the District at the present time. While I believe that these revenues belong to the District, I can also understand that Virginia and Maryland will have to provide for additional revenue in some fashion, even though, as I have been advised, the amount of revenue involved amounts to less than 2% of the revenues of these states. I would suggest a solution to relieve the immediate burden on these states.

Revenue sharing is much before us these days and so I think my proposal will clearly be seen to be in the temper of the times.

I propose that a person who works in but lives out pay taxes to both the District of Columbia and to the state and county in which he resides. I suggest that such a person be permitted to deduct all of the income tax he pays to the District of Columbia from the bottom line of his federal income tax form, that is, a deduction from his federal income tax. Thus, the Federal government will be supplying the fiscal aid so sorely needed by our city and on an equivalent scale and to the extent that the city itself is willing to tax its own citizens.

By this method full tax support will be available to both inner city and suburb, and no commuter will suffer from double taxation.

I am fully aware of the difficulties which this reciprocal income tax proposal poses to this Committee, particularly to those members who represent adjoining jurisdictions. I suggest that a test of your abili ties as legislators involves not only the ability to provide for your own constituents, but to manage the affairs of the only jurisdiction solely under your control. The welfare and stability of the District are vital to the well-being of the adjoining communities, and to the nation.

I have said many times there is no hiding behind the shrubbery of suburbia. Crime, narcotic addiction, transportation problems and the problems of the poor do not stop at the city boundaries. Thank you, Mr. Chairman.

Mr. CABELL. Thank you, Mr. Hechinger.

Your proposal with reference to the income tax payable to the District, that it be a deduction from one's federal income tax obligation, in effect, that is not a tax at all. That's just asking the federal government to make that additional contribution to the District government. In effect, isn't that it?

Mr. HECHINGER. The alternate, of course, is a reciprocal tax, which is employed

Mr. CABELL. I was speaking first to your proposal with reference to the income tax obligation to the District being a deduction from the bottom line of the federal income tax.

Mr. HECHINGER. That would be, as you say, a return of revenue to the District of Columbia.

Mr. CABELL. But in effect, that is that your people are not paying that tax. That's just being taken away from the federal income. Mr. HECHINGER. No, sir. The citizens of the District will pay an income tax

Mr. CABELL. But that automatically becomes a deduction from their federal responsibilities.

Mr. HECHINGER. The District resident will pay the income tax. The non-resident, the person who lives outside the District, will pay the District income tax and it is only he that will deduct that amount. Mr. CABELL. That's only the one outside the District.

Mr. MIKVA. Are you suggesting that that be done solely for D.C., for people who work in the District of Columbia? As you point out in your statement, that has been one of the alternatives offered to revenue sharing on a nationwide basis. I have some misgivings about doing it solely in the District of Columbia. Are you suggesting solely for people who live in the District of Columbia?

Mr. HECHINGER. I'm testifying for the District of Columbia and I would say that the applicability to urban tax problems and the transient population and the need to identify where persons earn their living and where they reside, that is applicable nationwide.

Mr. ABERNETHY. But the fact remains, Mr. Hechinger, that you have just suggested this only for the District of Columbia, didn't you? Mr. HECHINGER. Well, the reason was, sir, that I'm testifying on the bill of the District of Columbia and I would say that it is a place to get started.

Mr. ABERNETHY. As I understand your proposal, if I lived in Maryland and worked in the District of Columbia, I would pay to the District of Columbia an income tax on that which I earned in the District, and then, when I made out my income tax to Uncle Sam, I would deduct that from what I owe Uncle Sam, which would, in effect, have the rest of the nation making a contribution to the District of Columbia, wouldn't it?

Mr. HECHINGER. You would deduct the amount that was paid to the District of Columbia from your Federal income tax.

Mr. ABERNETHY. What I said is accurate?

Mr. HECHINGER. That is accurate, yes.

Mr. ABERNETHY. And that, then, would be applicable only to the District and not to the rest of the nation?

Mr. HECHINGER. My overwhelming desire is to see that the unequal treaty that was written some years ago as between Maryland, Virginia and the District allows us to have a reciprocal income tax, so that the objection with our close-in neighbors who are sitting as a judge on this matter object to the loss of the states.

Mr. ABERNETHY. Your proposal is that the rest of the country would just pick up the treaty you made with Maryland and Virginia. That's what you're proposing, isn't it?

Mr. HECHINGER. I would say that that is an important thing for the nation to realize, what is going on in the District of Columbia.

Mr. ABERNETHY. How popular do you think that would be out in Illinois or down where I live. We couldn't sell that to our people.

So.

Mr. MIKVA. The federal payment has that same impact, only more

Mr. ABERNETHY. That may be true.

Mr. MIKVA. The federal payment is even more direct.

Mr. CABELL. This is just a new way of increasing the federal payment. Mr. MIKVA. Except that it isn't quite-I'm not sure of my mathematics here, but I think that the impact isn't quite 100¢ on the dollar, the way it is on the Federal payment. The Federal payment clearly is spreading the burden of managing the District of Columbia government over the entire country, and I think Mr. Hechinger's proposal is in that same direction. But I think that it isn't quite as full an impact on my constituents and yours.

Mr. ABERNETHY. If your proposal were made nationwide, then it would be an equitable thing. Our States would share in the same manner. That would be a matter for the Ways and Means Committee to consider. I'm not saying there's any merit or demerit to it, I'm just saying we can't sell this idea to Congress unless it is a nationwide idea. The idea is novel and interesting, but it's one that can't be sold, and I think the witness realizes that.

Mr. HECHINGER. The only thing, Congressman Abernethy, is that, like most everything else in terms of the focus of attention on the Nation's capital, to bring this idea out of this committee to demonstrate the urban plight of our cities would indeed be a progressive thing. You see, in the District, the reason why the Nation should contribute perhaps more than in other cities, is that a quarter of the commuters are coming here working for the Government.

Now, we could very well have, actually, a withholding tax on the Federal payroll check. Deductions for local taxes are allowed for, and this could take place. And the reason for all this is because we are indeed the office, the workshop, of the Federal Government.

Mr. ABERNETHY. Well, I'm sympathetic to the idea of taxing income where it's earned. That's done in almost every jurisdiction in the United States.

This area is the only one where that isn't done, where an income tax is in effect; is that not true?

Mr. HECHINGER. That is right.

Mr. ABERNETHY. I know in my own State, people who live outside the State, if they make income in the State, we tax them, and I don't see anything wrong with the District doing the same.

When you were on the City Council, did you have I believe you were on the Council-did you advocate that District employees who live in Maryland and Virginia, that they should be required to pay a tax to the District of Columbia, where they earned their money?

Mr. HECHINGER. Yes, sir, except that it was even broader than that, and that was for all employees who work in and live out.

Mr. ABERNETHY. If we can't tax all of them who earn-if we aren't able to pass a bill to tax all who work in the District and pay no tax to the District, you would be happy to have at least a tax on those who work for the District, in the District, and reside outside and pay no taxes to the District?

Mr. HECHINGER. I think that would not be equitable. Not just those who work for the District and live out because here people are going to work, one in the District Building and one right next door in the Post Office Department.

Mr. ABERNETHY. What's inequitable about it?

Mr. HECHINGER. Because the person who lives outside the District, whether he works for the District of Columbia as the city or works for the Agriculture Department

Mr. ABERNETHY. They both pay an income tax. They just pay it in a different office. There is no exemption made available to anyone. There's no favoritism played. I'm just taking the position that if this Committee is unable to vote out and pass a bill that taxes people— taxes income made in the District, I mean everyone, then the second part might be that we might at least get some income out of those who work for the District and pay no income tax to the District. You wouldn't favor that?

Mr. HECHINGER. I would say that

Mr. ABERNETHY. If you don't, it will really surprise me.

Mr. HECHINGER. Only by the fact that, as I say, the only difference between the employer is one street away, the 14th Street-there's the Agriculture Department and there's the District Building.

Now, let me say this: I'm of the mood to say that anything that moves towards this principle, that you pay taxes where you earn, as you have suggested, I think would be a move forward.

Mr. ABERNETHY. Isn't that a step forward?

Mr. HECHINGER. It is.

Mr. ABERNETHY. You're going along with me now?
Mr. HECHINGER. Yes, I'm sort of backing into it.

TAX EXEMPT ORGANIZATIONS

Mr. ABERNETHY. You make another point that I think has merit. I don't think it means so much money to the District. I think the existence of it is played all out of hand by yourself and others in the District, and that is the tax exemption of the properties in the District owned by these associations, citizens groups and religious groups. They exempted one the other day and I voted against it. I have voted against such consistently. It doesn't amount to much, but I think that they ought to go back on the tax rolls, at least some of them, because a large number of them really are lobbying organizations.

Do you agree with that?

Mr. HECHINGER. Very definitely, sir.

Mr. ABERNETHY. And there's one not far from this building here that stays on the Hill, has been here for years and years lobbying for a particular item, in particular a constitutional amendment. I don't see any reason why they should be exempt from taxes because they're coming to Washington just to open up an office to lobby. And that's what most of them do and I think they ought to pay their share.

There's one organization, one exemption, though, that is included in that list of the exemptees and I want to see if you think they ought to pay taxes. That's Howard University.

Are you excepting them from the group you're testifying about here? You wouldn't tax an educational institution, would you?