growing industry, that it is felt by the Council that this certainly should be any of these exemptions should be eliminated.

The local telephone charge is self-explanatory inasmuch as it is taxing all utilities precisely alike.

The removal of the I percent sales tax on food, again, thinking in terms of welfare payments and the need to furnish benefits to those who least can afford to pay, would make sense. That in the third category, the basic element that it would be a thing that would be appropriate to eliminate that surtax.

As the Mayor said, we have already exercised our ability within the Council to raise the real estate tax, and in so doing, we are still in line with our counties at neighboring jurisdictions.

The total package, when it gets through, although each one of the things are different, as the Mayor said, it is unfortunate to raise taxes, and each of us feels them personally. But as a total package, the balance between where the taxes fall and in balance with our neighboring jurisdictions, we think them to be fair.

Thank you, sir.

Mr. WASHINGTON. Mr. Chairman, to conclude our statement before questions, I would like to call upon Mr. Back, who will speak specifically to the items. I would also like, Mr. Chairman, if I might, to indicate again the apreciation of our administration and the citizens to you, sir, Chairman McMillan, Mr. Nelson, Mr. Sisk, and Mr. Broyhill, for your great cooperation in cosponsoring this bill for us. I feel that the record should show the appreciation which we have for your concern and for your interest and cooperation in this regard.

Thank you, sir.

The CHAIRMAN. Mr. Back.

Mr. BACK. Mr. Chairman, members of the Committee, Mayor Washington has indicated in general terms the elements of the tax increase program being recommended for your consideration. I would like to briefly analyze the major provisions of the various titles of H.R. 16361 after which I will be happy to attempt to answer any questions you might have on any of the revenue proposals before

TITLE I-FEDERAL PAYMENT

you.

Title I of the bill establishes a new basis for determining the amount of the Federal payment authorization for the District of Columbia. The people who reside in or do business in the District are not the only ones with a stake in the future of the city. The Federal Government and indeed, all Americans have a responsibility for the Nation's Capital. It is in recognition of this that the District again proposes that the Federal payment authorization be made equal to 25 percent of general fund revenue from local taxes rather than a fixed amount.

This proposed method of determining the Federal payment authorization ties the Federal payment directly to the level of local taxes so that as local taxes increase the amount of authorized Federal support increases. The resultant Federal payment authorization provides a more realistic level of Federal support in fiscal 1969 and future years. A Federal payment authorization based on a percentage of local tax revenues also would enable the District to anticipate what amount it may expect from this source early in the budgetary planning process

which will facilitate sound and orderly financial planning to meet the long range needs of the Nation's Capital.

This proposed 1 to 4 ratio between the Federal payment authorization and local tax revenues reflects what Congress in the past considered an appropriate level of Federal support. The Federal payment authorization has been increased six times since 1947. Though not explicitly computed as a percent of local taxes, the fixed amount of the authorized Federal payment at the time of three of these increases represented between 23 and 25 percent of local tax revenues. Under the provisions of Title I, the Federal payment authorization for Fiscal 1969 would amount to $82.9 million which is $12.9 million more than the present fixed authorization of $70 million. This estimate of the Federal payment authorization is based on Fiscal 1969 estimates of general fund revenue from local taxes and the general fund portion of motor vehicle registration fees of $302.3 million plus $29.3 million from the proposed tax increases in this bill and the property tax increases adopted by the D.C. Council.

The remaining titles of the bill would provide net additional local tax revenues of $25.1 million annually.

TITLE II-INCOME AND FRANCHISE TAXES

Title II of the bill amends the District Income and Franchise Tax Act to change both the rates and brackets of the individual income tax and extends the coverage of the unincorporated business tax at the present 5 percent rate to personal service businesses now exempt. The present and proposed individual income tax rates and brackets are as follows:

The proposed District income tax scale is more progressive than the present one and uses five steps to reach the maximum rate of 6 percent on taxable income over $10,000. The overall effect of this proposed change is to reduce the tax burden of persons earning low incomes and least able to pay and increase the burdens of all others. The Virginia income tax scale reaches its maximum rate of 5 percent on taxable income over $5,000 in only three rate steps. The Maryland income tax is even more steeply graduated reaching its maximum rate of 5 percent on taxable income over $3,000 in only four rate steps. The Maryland law also permits localities to impose an additional surtax on the state tax ranging from 20 percent to 50 percent. It is estimated this change in the District income tax will produce an additional $8.2 million annually.

Title II also removes the present exemptions from the unincorporated business franchise tax to provide an additional $1.6 million annually. These exemptions involve personal service businesses such as legal, medical, accounting and other professional businesses which by law, custom or ethics do not incorporate. Enactment of this pro

posal would subject all unincorporated businesses who engage in commercial activities in the District to the unincorporated business franchise tax. A number of the professional groups presently exempt but which would be taxed under this title are nonresidents who engage in business in the District and are not required to pay individual income taxes to the District since the District individual income tax is only applicable to residents. Neither Maryland or Virginia has an unincorporated business tax. Similar income in these states is taxed as personal income under their individual income taxes.

TITLE III. SALES AND USE TAX

Title III of the bill increases the general sales and use tax rate from 3 percent to 4 percent, makes local telephone service charges subject to the 4 percent general sales tax as are all other utility services in the District, increases the sales tax on restaurant meals and alcoholic beverages from 3 percent to 5 percent, and eliminates the present 1 percent sales tax on groceries.

The general sales tax rate in Maryland is 3 percent and the combined State and local general sales tax rate in Virginia will be 4 percent as of July 1, 1968. Since the proposed 4 percent general sales tax rate for the District will not apply to groceries or to rent, the impact of this income on lower income groups is considerably less than the broad based sales taxes in Virginia and many other states. Removing the 1 percent sales tax on groceries minimizes the impact of District sales taxes on the lower income group which spend a relatively larger proportion of their income on food than do those earning higher amounts of income. Increasing the sales tax rate on restaurant meals and alcoholic beverages from 3 percent to 5 percent makes these items taxable at the same rate as hotel accommodations which are presently taxed at 5 percent. This tax increase would apply primarily to tourists and other visitors and to higher income persons while imposing a minimal additional burden on lower income families whose purchase of these items is relatively infrequent.

The net additional revenue which Title III is expected to produce amounts to $15.3 million annually, broken down as follows:

Increase in the general sales tax rate from 3 percent to 4 percent, $10.6 million.

Taxing local telephone service, $1.4 million.

Increase the rate on restaurant meals and alcoholic beverages from 3 percent to 5 percent, $6.6 million.

Eliminate the 1 percent sales tax on groceries, less $3.3 million.

We do not think the local tax increases incorporated in H.R. 16361 will unduly burden District residents nor seriously jeopardize the competitive position of the District for either residential or business purposes. Tax rates and tax burdens have been steadily increasing in the Washington Metropolitan Area surburban jurisdictions. Enactment of this bill will bring District tax rates and burdens more into line with those in the nearby Maryland and Virginia jurisdictions. A comparison of the proposed and present District tax rates and burdens with those in the Maryland and Virginia suburbs is shown in the exhibits before

you.

Such a comparison is under Table C in the exhibits in the booklet which you have (p. 46), if you would like to turn to it at this time.

Mr. HORTON. Which one?

Mr. BACK. Table C in the booklet is a comparison of the major taxes paid by the individuals for a family of 4 at three different income levels. You will notice that we have set up the District of Columbia taxes as proposed and as at present, and in the various counties in the metropolitan area. We have computed, as best we were able to, income tax, the real estate tax, the sales tax, and tax on automobiles as being the major taxes-direct taxes on an individual.

You will note, looking at the District of Columbia column under the totals, even after enactment of this bill, the District will generally be lower in the total of these four taxes than any of the surrounding jurisdictions.

Mr. BROYHILL. Why?

Mr. BACK. Well, primarily for two reasons. In Virginia, automobiles are taxed high, because we are subject to personal property tax. You will notice in the Virginia column under automobiles-you will find it is substantially higher than in Maryland or the District of Columbia. In Maryland their income taxes were raised last year considerably, and particularly in the counties where they have the 50 percent surtax applied to the state tax.

In the Maryland counties, of course, they are much higher in the real estate tax than is the District of Columbia. In real estate taxes, the District is as high or higher than Virginia, but lower than Maryland. In income taxation, we have been lower than both Maryland and Virginia, and I think we still will be below both Maryland and Virginia, although this is a fairly substantial increase being proposed in individual income taxes.

REAL ESTATE TAXES

Mr. FUQUA. Mr. Back, what is the percentage of assessed value to cash value in real estate property in the District of Columbia? Both the Mayor and the Chairman of the Council mentioned the fact that the Council has raised rates on real property. What is the appraised value that you use versus the cash or market value?

Mr. BACK. The assessed value is approximately 55 percent citywide of the full market value and all types of property are considered. Mr. FUQUA. Is the Council giving consideration to bringing assessments up to full cash value?

Mr. HECHINGER. I would say, sir, that the relationship of market value to appraised value, in most jurisdictions, is a percentage somewhere comparable to this in the District. Rather than tax on the hundred percent apraised value, there is a formula. I know this is true in nearby counties as well as in the States. There has been an increase in real estate taxes of some proportions on a continuous basis over the years.

Mr. FUQUA. The question I am asking here is, is any property being excluded from taxation because of the low relationship between the assessed value and the cash value?

Mr. BACK. I think I can answer that, and the answer is no. All property is assessed. We have an awful lot of exempt property in the District of Columbia. As you may know, 54.7 percent of the land area of

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the District is exempt, but it is all assessed. Now, as you know, the amount of your real estate tax is a product of the rate times the assessed value.

Mr. FUQUA. You are getting the same amount of revenue under the present system as you would if it were assessed 100 percent of market value?

Mr. BACK. I know of no jurisdiction in the country that assesses property at 100 percent of market value.

Mr. STEIGER. The State of Arizona does.

Mr. FUQUA. The State of Florida does, too.

Mr. BACK. I know the practices of most states, and I know they try to, but by the time they get it assessed, it is not 100 percent of market value. I think that the studies that the Census Bureau made indicates that no one is at 100 percent of market value. It is true that you study your level after the fact. We attempt here to asses property not at 55 percent. We attempt to assess property at closer to 65 to 70 percent, but by the time we get it assessed and come back and measure, the market has moved on.

Mr. ABERNETHY. What has been the general percentage increase in real estate tax over the last 15 or 16 years?

Mr. BACK. Well, Mr. Abernethy, I don't have those figures. I could give you the rate increases. Again, the tax base, the assessed value, goes up every year. We have raised the assessment

Mr. ABERNETHY. I think mine has gone up about 200 percent. Is that general throughout the city?

Mr. BACK. No, sir; it is not.

Mr. SISK. I am a resident here. Over the last 10 years it has gone up. I am not complaining. Maybe it should be higher.

Mr. ABERNETHY. I am not complaining, either. I am just asking if that is general.

Mr. BACK. Over all, the assessed value from between 1964 and 1969 was increased 27.5 percent. Estimated 5 percent per year increase in the value of the property. Now, the rate has gone up from time to time. In 1962 the tax rate was $2.50. For Fiscal 1968 the rate is $2.90. For Fiscal 1969 the rate will be $3.00.

Mr. ABERNETHY. Well, my figures might be just an estimate. I don't know. As I say, I am not complaining, I am just wondering. It looks like to me it ought to bring in an awful lot of money.

Mr. SISK. As I remember the tax figure, I think it has doubled in 10 years on assessed valuation. You break your assessment down, the land is so much and the improvements so much. I think it certainly more than doubles.

(Subsequently, the following tabulation was submitted for the record :)