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Another Lesson for the Arlington Worthies?

We’re not aware of any plans by the Arlington County Board to request authority from the Commonwealth to impose a county income tax. But we shouldn’t forget that the District of Columbia has long wanted to impose a so-called “commuter tax.” Consequently, a study (Fiscal Fact No. 133) released last Friday by the Tax Foundation is worth reading since it explains the pernicious negatives of local income taxes. According to the Tax Foundation:

“Local income or wage taxes can be a part of a sound tax system, particularly if revenue is used to reduce other taxes that may do more economic harm. Using local income tax revenue to reduce corporate income taxes or property taxes can still produce a friendly tax climate.

“However, local-level taxes on wages and income are clustering in areas with poor business tax climates. Philadelphia is one of just six of America's twenty largest cities by population that impose a city- or county- level tax measured by compensation, be it a tax on wages, earned income, or occupational privilege. (The others are New York City, Detroit, Indianapolis, Columbus (OH), and Baltimore. It should also be noted that Washington, D.C., while imposing a state-like income tax on its residents, has long sought to impose a "commuter tax" on nonresident workers, but is prohibited from doing so by federal law.”

And what advice does the Tax Foundation offer county and city legislators? They write:

“Cities and counties should be cautious when imposing local-level taxes on wages, income, and occupational privilege. First, officials should consider whether the tax is worth the compliance costs imposed on workers and businesses.”

An informative table of local wage, income and occupational privilege taxes is also provided, which explains why it’s better to live on the Virginia side of the Potomac River than on the Maryland side. For example, every Maryland county imposes a county-wide income tax, ranging from 1.25% to 3.20%.

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