Nearly a year and a half after starting its work, an influential commission meant to guide the development of D.C. tax policy is stuck in a quagmire and plagued by infighting after its most business-friendly members blew up what was supposed to be a consensus proposal. Loose Lips almost hates to say he told you so. Almost.

Progressive groups watching the Tax Revision Commission have been warning for months that its most fiscally conservative members—including former Mayor Anthony Williams and a crop of well-connected lobbyists and developers—could undermine the group’s mission, ensuring that the advisory panel delivers an overly regressive set of recommendations to shape the city’s economic future. Not only were their fears well-founded, it now appears as if those early warning signs couldn’t fully predict the degree to which the commission’s deliberations would fly off the rails.

“We were trying to warn early on that it felt like this process could be hijacked or captured,” says Mat Hanson, a close observer of the TRC in his role as chief of staff with the left-leaning advocacy group D.C. Action. “And a lot of what we were warning about then seems like it’s really coming to pass right now.”

Late last month, TRC Executive Director Nick Johnson revealed in an email newsletter that the commission wouldn’t have any final recommendations ready until September, nearly a year after the commission’s original target date to hand over some sort of report to Mayor Muriel Bowser and the D.C. Council. The group was running slightly behind as 2023 wrapped up, but it still circulated a draft set of recommendations known as the “chairman’s mark” in January, aiming to collect feedback and then vote to finalize the document shortly afterward. So it came as quite the shock to all those watching the TRC to see it punt once again, ensuring that its final recommendations won’t be ready for the 2025 budget cycle. The commission’s woes represent a neat bit of foreshadowing for the broader problems presently enveloping the budget process.

LL hears that the delay at the TRC cropped up because of internal disputes on the 11-member commission over whether its proposal should be “revenue neutral,” by including a mix of tax increases and decreases. The idea would be to make the city’s taxation system more sustainable in a changing economy without making politically fraught decisions about whether to raise revenues or not. A key pillar of this plan was a new “business activity tax,” a type of value-added tax that would raise $275 million annually by taxing unincorporated partnerships and large multinational corporations that generally avoid D.C. levies on their profits. Among other increases, the business tax would be offset by cuts elsewhere. 

Although the idea initially had broad support on the commission and was included in the chairman’s mark, consensus collapsed at a pair of meetings in January. Williams, in particular, reversed his support for the proposal at a Jan. 17 gathering and shocked most members, according to a source familiar with the commission’s deliberations. Two of the group’s members, former councilmember-turned-lobbyist David Catania and big-time developer Jodie McLean of Edens, argued forcefully against the so-called BAT, but things didn’t truly melt down until Williams’ change of heart. As the group’s chair and the head of the influential, big business-boosting Federal City Council, he exercises outsize sway over the process and didn’t even bring the matter up for a vote. The group’s January meetings collapsed into petty bickering at times, and members opted to adjourn for months until they could think through another approach.

This has evinced a tremendous amount of exasperation among councilmembers, according to several Wilson Building sources. Lawmakers are well aware that Bowser’s proposed budget will almost certainly include a series of painful cuts, and they have been counting on the TRC to come up with some creative ideas about how to raise revenue and reshape the city’s tax structure. Many, particularly Chair Phil Mendelson, have vowed repeatedly to wait until the commission can finish its work before fiddling with tax policy. Hanson argues that the TRC is “at risk of blowing its credibility” by repeatedly missing its deadlines, and he is not alone on that front.

“I understand the frustration with the Council,” concedes Yesim Sayin, the head of the D.C. Policy Center and a member of the commission. “Believe me, every member of the Tax Revision Commission, we also wish that we could have made recommendations that we can live with on our consciences. But it’s just not the time yet.”

Johnson tells LL that “this commission only convenes once every ten years” and so “commissioners are taking time to process what they have heard and turn it into recommendations that will strengthen the tax system for the decade ahead.” He adds that the commission and its staff have communicated frequently with councilmembers, including Mendelson, so they’re aware of what kind of proposals the TRC is considering, even if they don’t have a full package of recommendations in front of them in time for budget negotiations.

Sayin cautions that D.C.’s needs are so great at the moment that the commission’s recommendations aren’t a silver-bullet solution, especially since things like the BAT would likely take years to implement. “We can’t raise a billion dollars in taxes,” she says, citing the budget deficit facing city leaders this year. “It’s impossible.”

But the city’s needs have grown so dire that lawmakers really can’t afford to wait, or else future budgets could get just as ugly. What’s more, it will be difficult for the Council to take any cues from the commission, either this year or in the future, when the message coming from its members is so muddled. 

Consider that Williams, who still commands quite a bit of respect from Bowser and many sitting councilmembers, was for the BAT before he was against it. He was even willing to clash with Catania—who has emerged as a close ally of Williams in recent years, even though the two once tangled while they both still held public office—when the former lawmaker started bashing the tax at the commission’s Jan. 8 meeting.

“David, I wish you wouldn’t always personalize every goddamn thing,” Williams interjected, as Catania was busy arguing that members of the commission who work for nonprofits (which would be exempt from the tax) weren’t equipped to judge its merits. “You can make your points without personalizing it.”

“I am making my points, allow me to make them the way I choose to,” Catania retorted. Earlier in the meeting, both he and McLean had proclaimed the BAT “dead on arrival.”

Nine days later, suddenly, Williams was singing a similar tune. He said the news that had broken earlier that day that Fannie Mae planned to move out of its downtown D.C. offices years ahead of the end of its lease, when combined with Ted Leonsis’ plans to relocate his teams to Alexandria, had helped convince him to change course. And, Williams added, he’d spoken with “corporate executives” and partners at major law firms who’d be targeted by the tax that the time is wrong for such a solution.

“If you have 30 percent of the law firms left [in D.C. already], the patient is in the ICU, it’s in the operating room,” Williams said. “This is not the time to experiment with a brand new tax system. There’s too much uncertainty. And we just don’t even know how the damn thing works.”

To some extent, Williams’ criticism was a bit predictable, considering the interests he represents. “People in D.C. love to rely on him in these situations, but he’s not a free agent,” snipes one longtime politico, who asked for anonymity to speak freely about the situation. “He’s not going to be a completely impartial broker in this.”

Yet the BAT appeared to be the sort of solution that even business-friendly players like Williams could support. The tax is generally designed to target huge corporations that currently avoid paying many D.C. taxes because they’re technically based elsewhere. The idea initially attracted support as a way to put truly District-based businesses on a more even playing field with the big boys.

“It’s totally unfair to have locally owned businesses footing the bill for a bunch of other businesses just because their owners live outside of the District,” says Erica Williams, executive director of the left-leaning D.C. Fiscal Policy Institute and a member of the TRC. “And from a racial equity perspective, there’s a pretty good likelihood that you could shift the business tax burden from locally owned businesses, that may be more likely to be owned by Black and brown folks, to the kinds of pass-through entities that are more likely to be owned by White folks.”

Sayin agrees that the idea has some promise, and she initially supported the pursuit of the tax as a pillar of the TRC’s recommendations. But she believes some of Williams’ trepidations are well-founded, suggesting that the Council could return to this debate outside of this year’s chaotic, compressed budget process once the office market has settled a bit. Lawmakers need to approve new spending as part of the budget, but they could pass a stand-alone tax bill to raise revenue at any time. (It’s worth noting that her organization was incubated by Williams’ Federal City Council, so she’s bound to align closely with him.)

“In this environment, who are the big demanders in our office space?” Sayin notes. “It’s the very same companies which we will be taxing more under the BAT. It’s the law firms, it’s the management consulting companies, it’s the accounting companies … And their relocation decisions are increasingly moving to Sun Belt states where the business climate is arguably better. And, to me, that’s giving me concern with the concept.”

The BAT’s backers haven’t abandoned all hope. They note that Williams seems to have softened his opposition in recent weeks. The fact that the TRC recently scheduled a trio of meetings covering New Hampshire’s “business enterprise tax,” which could act as a model for the BAT, has further fueled this perception. 

But broader concerns about the TRC’s composition still make its critics skeptical about whatever final product the group ultimately delivers. The chaotic end of the group’s last meeting on Jan. 17 was representative of essentially every fear outlined by progressives a year ago: That Catania, the hard-charging former Republican, would dominate the process and steer the TRC toward more conservative solutions that also happen to benefit his lobbying clients.

Catania spent much of the final half-hour of that meeting suggesting revenue “triggers” for whatever policies the TRC recommends, mirroring a past commission’s approach to tax cuts: Whenever revenues grew by a certain amount, these cuts would kick in for certain tax brackets. He argued forcefully that this could also work here, only allowing tax changes if it was clear revenue was growing, in order to “encourage a little discipline” from lawmakers and prevent “unsustainable” levels of spending. This generally contributed to the meeting melting down.

“Now we’re going to use this commission to discipline the Council on how it should spend money, which is not our charter?” said TRC member Gregory McCarthy, the top lobbyist for the Washington Nationals and a former Williams aide. “We’re talking about starving government to shrink it. I just don’t see or read the law that that’s what our mandate is. It’s not in there.”

Those comments set off a lengthy round of arguing with McCarthy, and the group eventually decided to simply adjourn. But even that process got messy. Before the meeting closed, Catania got in a dig at Johnson, arguing that the TRC’s staff was not among “those of us who’ve actually been in the world and served people.”

“You’re so rude,” Johnson responded, exasperatedly. 

With debates like that, LL can understand why confidence in the TRC is not an all-time high at the moment. This current Council may be more moderate on some issues, but will it really accept a lecture from the TRC about the need for fiscal discipline in the current economic environment? Some cuts are probably inevitable over the coming years, but even the tax-averse Bowser is likely to propose some rate hikes in her 2025 budget. Why should the Council accept that austerity is the only option moving forward when there are so many other solutions on the table?

“One of the messages we need to send is: Here’s a tax package that kind of moves D.C. from yesteryear to tomorrow,” Sayin said at the Jan. 17 meeting. “If we don’t do that, you know what’s going to happen in response to the 2025 budget: They’re gonna increase personal income taxes and that’ll be the end of it.”

That’s certainly an idea favored by some left-wing groups watching the budget process, who have proposed options including more tax hikes on high-income earners, an increased capital gains tax, and a new levy on high-value homes. Some of these ideas were considered but dismissed by the TRC.

But after years of waiting on the group to get its act together, LL wonders whether lawmakers will give up on this process and go their own way.

“We’ve been asked to wait for the Tax Revision Commission to finish their work and honor that commitment and honor that process,” Hanson says. “But then some of the very folks who are driving that process are breaking what seem to be one of their most fundamental and important commitments … And it seems like the question we need to be asking is: Are we going to wind up with a more regressive tax code, or are we going to wind up with something progressive that at least helps us prevent the harmful budget cuts, which really seem like they’re going to be coming out with the mayor’s budget?”