Economic policy experts expressed concern about the repercussions the D.C. government considering tax increases could have on the city’s residents, despite the revenue it could bring in for the District.

The D.C. Council last Friday began considering seven tax-related bills that would increase taxation in sectors like property and sales to improve a currently struggling local economy. Experts who attended the Council’s nine-hour marathon meeting regarding the proposals stressed the potential risks the proposals could bring by putting additional tax burdens on businesses, homeowners and middle-to-low-income residents.

The District’s revenue forecast from March suggests that the city’s deficit for fiscal year 2028 will fall between $660 to $837 million, partly due to cuts to federal jobs, decreasing income and dwindling employment.

The bills discussed by the council at last Friday’s meeting included a 3 percent tax on investment holdings, a higher tax on properties valued at over $2.5 million that are not the owner’s primary residence, a sales tax increase, a business activity tax targeting out-of-state lobbying firms, broad property tax hikes, an income tax increase and a separate tax on land improvements. The overall goal of the taxes are to raise revenue for the District and dig D.C.’s economy out of a revenue shortfall. 

“It’s not my intention that we’re going to just adopt a tax increase right now, but I thought it was important that we have a full airing of different proposals,” Chairman Phil Mendelson said in a press conference following the meeting.

Katherine Loughead, the vice president of state tax policy at the Tax Foundation, a nonprofit organization that researches and analyzes data on U.S. tax policies, said council members are looking at ways to raise revenues because D.C. is experiencing overall revenue “tightening,” specifically in the rate of growth for the D.C. economy, which has slowed, putting a strain on tax-funded social programs like rent assistance and child care subsidies.  

Loughead said a major driver of the revenue shortfall was the COVID-19 pandemic shutting down many businesses and the Department of Government Efficiency cuts, which laid off roughly 100,000 members of the federal workforce in the DMV, creating a “mini recession.” Due to the cuts, she said there is less disposable income for people to spend, contributing to the downward economic trend and less money to put into welfare programs. 

The District has experienced a 13 percent reduction in the federal workforce after cuts by President Donald Trump’s administration. The District’s unemployment rate also jumped in March to the nation’s highest at 6.7 percent in December, from 5.3 percent in January 2025.

“It’s a very vicious cycle,” Loughead said. “When people need more support, that’s also when the revenues are tightening up.”

She said items like the ‘pied-à-terre’ tax would impose a disproportionate share of the burden on homeowners with a second property who only demand a “modest share” of that tax’s revenue because those owners often don’t rely as heavily on the public services funded by that tax revenue. She said District officials may also need to implement spending cuts to counteract the potential revenue loss the city faces.

“If D.C. were to continue under the current scenario, there would probably be some revenue off as projected this year or just D.C. would not be able to meet the budget needs that it’s planning on being able to meet in terms of spending,” Loughead said. “So there would be a need for some spending cuts to balance the budget there.”

Loughead said the majority of pain from taxes as a whole would be felt by the poorest and middle-class residents in the District, who often face an unequal distribution of the tax burden because the city’s current tax system targets larger shares of smaller incomes. She said the Council needs to find ways to raise the revenue through tax codes that improve equity for residents. 

“The tax code is biased towards wealthy white men, and that wealth is allowed to grow and everybody else has their wealth stripped away in the tax system,” Loughead said. 

Shawn Hilgendorf, the vice president of government affairs for the D.C. Association of REALTORS, said he voiced concern at the meeting about the adverse impacts a tax increase would have on housing and the District’s economy. He said a key issue for him was worries about the property taxes being “overly broad,” not specific to a sector and that blanket property taxes could disproportionately impact different sectors of the economy.

He said the two property taxes proposed included the pied-à-terre tax — a tax that increases the rates for homes valued at more than $2.558 million — which he said could be difficult to implement, as New York City is seeing challenges implementing theirs. 

He said the council also proposed options for a broad property tax increase, which included either a one penny per $100 for every class of residential and commercial property or a 10-cent increase overall, would be “devastating” for the residential market. 

He said D.C. officials must consider how their policy may increase the current outward migration in the District, as a result of job loss and rising costs, and how the proposals could impact the affordability and value of many residents’ homes, making it harder for them to choose to invest in the housing market and D.C. as a whole. 

“There are broader long-term impacts for our long-term tax revenue and economic well-being, if we can’t turn the market around, give people reasons to move to D.C., reward the people who have invested in D.C. in the long run,” Hilgendorf said. 

Yesim Sayin, the Executive Director of the D.C. Policy Center, a nonprofit organization focused on researching the impact of public policy in D.C., said a lack of feasibility and implementation difficulties, because many of the taxes are very slow-moving, hinder some of the tax proposals and reduce their ability to solve real problems. 

She said the city should ensure that expenditures grow at a similar rate to the economy’s growth every year, which has not been happening. She said the city needs to better understand the cost drivers that are increasing operations costs in order to react appropriately through legislation. 

“Every year the city raises revenue to do something or the other, and next year they come back and you know the revenue is there, but it’s not enough to pay for the thing that they promised to do,” Sayin said. “There’s something else in the budget that’s eating up that fiscal capacity.”

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