Mayor Muriel Bowser made a very telling error as she introduced her decidedly austere 2025 budget to the Council Wednesday. “You know by now that I take revenue increases lightly,” she said, missing a very important “don’t” ahead of “revenue increases,” according to her prepared remarks.
This elicited a round of snickers in the Wilson Building audience seated around Loose Lips, and for good reason. Throughout her nearly nine years in office, Bowser has made it clear that she is practically allergic to tax increases, a stance that has won her plenty of friends in the business community and the city’s wealthy upper Northwest neighborhoods. Even during the worst years of the pandemic, she did her best to avoid proposing any tax hikes whatsoever (leaving it to the Council to raise new revenues when necessary).
And so it is notable that Bowser has finally asked for some modest tax increases in this year’s budget proposal to close a variety of yawning gaps. Primarily, she wants to raise a payroll tax originally imposed to fund the paid family leave program, raising $250 million annually; then she wants to slowly increase the sales tax rate starting in 2026, bringing in up to $120 million each year. This money will patch up holes throughout the four-year spending plan, but the latter increase, in particular, is designed to address Metro’s own budget woes. The last big tax increase Bowser backed in 2018 had a similar purpose.
But the payroll tax is a much more ambitious change. Bowser is framing it as a return to the status quo, and she is partially correct in that regard. Businesses paid a .62 percent payroll tax for several years to fund the paid family leave program—howling about its detrimental effects all along the way—but lawmakers were ultimately able to slash the rate all the way down to .26 percent two years ago, since the fund was collecting more money than it needed. Bowser has talked incessantly about the need for a comeback for the city’s business community, particularly those based downtown. How are those companies going to take it if the city reverses course and hits them with this tax hike once again?
“We know how the market responds to the tax at that rate,” Bowser told the Council Wednesday, testifying in defense of her spending plan. “When you imposed it previously, you did it with the knowledge that two-thirds of the benefits would be going out of this city. In this case, 100 percent of the benefits are going to D.C. residents.”
Bowser simply could not resist getting in one more dig at the program, repeating a talking point opponents used for years to resist former At-Large Councilmember Elissa Silverman’s signature initiative. And she went a step further, too, cautioning the Council against simply hiking that particular tax rate even higher, should it want to reverse some of the mayor’s most painful cuts. In particular, lawmakers will be looking to find at least $70 million to restore a Pay Equity Fund meant to deliver raises to childcare workers that Bowser raided to close other gaps.
“If you go above that [rate], you’re in uncharted territory,” Bowser said. “If you want to make changes, it would be my recommendation to identify other cuts.”
But this strikes LL as a false choice, and it seems other councilmembers agree.
“I think there may be the stomach for [a larger increase] in the business community if they know it’s going to go toward programming that is going to help businesses in the city,” suggested At-Large Councilmember Anita Bonds, who never fails to surprise, noting that many of Bowser’s proposals focus on reviving downtown.
The payroll tax is one avenue to pursue, but the city certainly has plenty of other options. Ward 3 Councilmember Matt Frumin, not exactly the most radical lawmaker on the dais, even pressed Bowser on this point, wondering why she so pointedly took residential property tax increases “off the table, given the tremendous needs out there.” Indeed, Bowser repeatedly stressed when presenting the budget that her plan left that tax rate, paid by homeowners, untouched.
“You don’t want to be doing residential property tax increases in those amounts,” Bowser replied. “If you went there, you’d be increasing property taxes by close to 20 percent, and still not close the gaps that we need to close here.”
The mayor argues that this is an economic competitiveness issue, calling residential property taxes a “category where we are currently beating the region” but there is of course no reason why the city couldn’t ask both businesses and residents to pay more instead of one or the other.
Left unsaid is that touching this tax rate is a third rail, politically speaking. The people who pay these taxes also happen to be some of the city’s most frequent voters, whether it’s wealthy homeowners in places like wards 2 and 3 or seniors that have built wealth with careful investments in homes in wards 7 and 8. Perhaps Bowser, who pointedly has not ruled out running for a fourth term in office, sees no reason to burn any bridges here.
Still, a payroll tax hike isn’t going to make many of her pals in the business world happy. Some observers have speculated to LL that Bowser must have run this idea by key business leaders beforehand to make sure this didn’t rub too many the wrong way (though a small sampling in that world surveyed by LL said they had no knowledge of the proposal ahead of time). Maybe she’s earned enough credit from this set over the years to keep them on her side through the tough times—saving face with the Wizards and Capitals probably doesn’t hurt in this regard.
“Raising taxes on high-income earners, which the Council did just a few years ago, would only bring in $62 million a year—only 25 percent of what adjusting paid family leave yields,” Bowser added, in another shot across the bow against other potential tax changes.
The sales tax is a considerably trickier issue. On the one hand, regional leaders have been discussing the prospect of dedicating sales tax revenues to solve Metro’s structural financial problems for decades now, and Bowser confirmed that she views this tax hike as the first step in securing similar commitments from Virginia and Maryland. But multiple lawmakers also raised the alarm that this tax is fundamentally regressive, as it will fall harder on low-income residents trying to feed their families than on millionaires who will barely notice the change.
Add in Bowser’s proposed cuts to the earned income tax credit, which the Council funded with that same tax hike on high-income people, and cuts to emergency rental assistance funding, and some councilmembers fear that all these changes will fall primarily on the people that can least afford to pay more or lose services.
“People who get a lot of government services may see one thing adjusted down, but see another improvement elsewhere,” Bowser countered, arguing that her budget still includes new funding for public schools and interventions for frequently truant students. This led to a lengthy back-and-forth with At-Large Councilmember Robert White, her former and perhaps future mayoral rival, who challenged her frequent dismissal of the need for more rental assistance.
“You can’t turn a program meant for emergency assistance into telling people, ‘Don’t pay your rent because the government is going to do it,’” Bowser said, echoing an evidence-free argument she made last year that people who can afford their rent are applying for relief money anyway. LL feels it’s worth remembering that the city’s rules require people to provide proof of their economic need before receiving relief money, so Bowser’s allegation here seems misplaced. (Her own deputies admitted to reporters in a briefing on the budget that even $100 million in funding probably wouldn’t meet the demand for rental assistance.)
“We can’t sit here and pretend like there’s manna from heaven,” Bowser said, arguing that demand for such assistance would perpetually rise and the city fundamentally can’t afford to meet these kinds of needs. “If you don’t like what I’ve presented, then change it.”
That is precisely what lawmakers will set out to do over the next few weeks. LL may sound like a broken record on this point, but it bears repeating: Lawmakers might be able to find money to make changes on the margins, but it will take some big thinking (and political courage) to make substantial changes.
The mayor presents a world in which the city’s politicians have done all they can possibly do, where imagining any meaningful, structural shift is too radical to consider. In a city where so many are so obviously struggling, why accept that?
“We’re talking about slow changes to the sales tax, rather than using this opportunity to make big changes to make residents better off,” said Ward 1 Councilmember Brianne Nadeau. “The Tax Revision Commission is now looking to the Council to see where the political chips fall before making their final recommendations. I would ask my colleagues to consider this reality and take the best of the work the TRC has done so far. If the spotlight is back on us, the time is not to sit on our hands.”