Loose Lips

Gray Fine With Higher Taxes, Just Not for Techies

It's tough to find a coherent theme in Mayor Vince Gray's tax policy. Last year, he pushed for an increase on the marginal income tax rates of higher earners over the objections of critics like Ward 2 Councilmember Jack Evans, who said the District's taxes are already too high and even higher taxes would encourage rich folks to move to Virginia, the land of lower taxes.

"How long will we allow ourselves to remain the least competitive jurisdiction, while at the same time repeatedly asking District residents for more?" Evans said of Gray's proposed income tax increase at the time

Gray didn't sound much different today, when he went to a venture capital tech company's office to press the Council to approve reducing the tax rate on capital gains taxes for investors in the District's tech industry from 8.95 percent to 3 percent.

“We all know that 3 percent of something is much better than 8.95 percent of nothing—and nothing is what we’ll have if we don’t keep growing tech firms in the District," says Gray in a statement.

The statement from the mayor's office also says that legislation would "discourage the many entrepreneurs who have started and grown successful technology firms in D.C. in recent years from relocating to Virginia or Maryland because those jurisdictions currently offer lower capital-gains-tax rates."

The council already approved the first part of the mayor's "Technology Sector Enhancement Act of 2012," which gave online coupon company LivingSocial a $32.5 million tax break. The CFO's office can't put a figure on how much the capital gains reduction might mean for city revenues and notes that "most venture capital investments in technology companies are made by firms that are outside of the District."

So why the special treatment for rich techies over rich people in general? Hizzoner has rightly noticed that D.C.'s tech scene is booming and is trying to do what he can to foster that growth. Nothing wrong with that, but Gray's singular emphasis on making the District more business-friendly for tech firms seems unfair.  Take a way the words "tech" and "technology" from the mayor's statements above and they still hold true (or untrue, if that's what you're predisposed to believe). And why should some lucky tech geek or angel investor pay a lower tax rate than some schlub making only $40,000 a year?

Also note that Virginia-based tech investors currently pay 0 percent on capital gains and have significantly lower income taxes as well. Perhaps a better idea would be a comprehensive look at the city's jacked tax codes for all businesses, not just the tech industry—which, look at that, the city's already doing.

  • Dave Oberting

    The tech industry is politically popular. This is what governments do (i.e. the state of Illinois): implement a ridiculously high income tax rate for all companies and then hand out special favors to politically favored industries (tech) or even companies (Living Social). Not only is it completely unfair to the unfavored, it distorts the incentives for investment. We should lower the corporate tax rate substantially and get rid of all exemptions and special interest subsidies. That's tax fairness.

  • Northwesterner

    Technically it's appropriate to have higher taxes for certain industries- think vice industries like alcohol or strip clubs that have negative impacts on society- but I think Gray is stretching this one way too far.

  • Joe

    Why does he keep saying we have a tech industry? One internet coupon company is not the same as having a tech industry!

  • Sally

    So what's the difference between Gray's incoherent tax policy and that of the usual tax & spenders? At least Gray is being a bit innovative in clearly favoring a new & trendy (for DC) industry, whereas the usual tax & spenders keep pushing the same failed policies that have a decades-long losing record.

  • kob

    The developer of the building the tech start-up is located in probably received a large tax break, who will then charge market rates. Why not then give a company leasing space in this tax subsidized building a tax break as well?

    But, that said, this tax break is going to investors as an incentive to make the investment in the first place. A break on the capital gains is probably the last thing these investors are thinking about. Will that steer a tech start-up to DC versus Arlington? Does it really matter?