Wealthy residents are leaving the District of Columbia in droves, a new IRS report shows.
The District lost almost twice as many residents earning $200,000 or more per year as it gained from 2020 to 2022, the latest year for which figures are available, the federal tax collection agency said.
The 2022 loss ratio was slightly less severe, at 4-3, for residents 65 and older, the demographic group that dominates the top end of the tax bracket.
The statistics are part of a July 29 update to the IRS’s population migration report.
The vital component of the city’s tax base is eroding as D.C. leaders weigh massive tax increases to help fill a projected $700 million budget shortfall for the fiscal year that begins Oct. 1.
Chris Edwards, a fiscal policy analyst for the libertarian Cato Institute, said the less-affluent influx of residents in their 20s and 30s won’t be able to replace the tax revenue of the departing wealthier residents.
“Jurisdictions lose a lot when they lose high earners,” said Mr. Edwards, who has written about interstate migration for the Washington-based think tank. “They lose people who are entrepreneurs, people who are job creators, people who support charitable foundations and charitable projects. While the left demonizes higher earners and the wealthy, they actually do a lot for communities in general.”
The District’s office of revenue analysis published a study in the fall that found most people who left the city from 2019 to 2021 were in the early or middle parts of their careers.
More than 13,000 people ages 26 to 44 moved out of the nation’s capital during that period. More than 2,700 of them brought home at least $200,000 per year.
The office of revenue analysis backed Mr. Edwards’ assertion that those leaving the city had higher average incomes than new residents.
The District’s study found that the city lost $3 billion in net taxable income during those two years.
Adding insult to injury was the nugget that $1.2 billion worth of the tax base moved just across the borders to Maryland or Virginia.
The exact reason for the outflow of high earners was more difficult to pin down.
Daniel Burge, the economic policy director for the D.C. Policy Center, said better jobs and schools, more housing options and lower taxes contributed to the exodus.
Mr. Burge also pointed out that wealthier households generally have more resources to move.
The dynamic shift toward remote work after the onset of the COVID-19 pandemic gave “a number of people greater freedom to live farther away from their workplace,” he said.
Mr. Edwards said the District’s aggressive income taxes can significantly influence a wage earner’s decision to move.
The Cato scholar said net migration is up in South Dakota and New Hampshire, which have cooler climates and lack major city centers but are free of income tax.
The District has a graduated individual income tax, with rates ranging from 4% to 10.75%, and an 8.25% corporate income tax rate. It generally ranks with California and New York as one of the most heavily taxed jurisdictions in the U.S., according to the Tax Federation, a Washington-based think tank.
Morgan Knull, a longtime real estate agent in the Washington area, said residents aren’t departing for a specific reason, but he suggested a sense of fatigue from local governance.
He said young professionals with money, in particular, are leaving the District when the chance arises.
“I would be more curious if it was just some people leaving because of COVID and the [Black Lives Matter] riots and general incompetence of the D.C. Council. I mean, that is a thing,” Mr. Knull said. “People have just decided that they don’t want to live in the District anymore.”
City leaders are considering tax increases to address a projected budget shortfall.
Mayor Muriel Bowser and the D.C. Council have agreed that tax hikes are needed but disagree over the scope.
Ms. Bowser refused last month to sign the council’s approved budget, which would have raised payroll and property taxes.
Her plan called for higher hotel and electric vehicle taxes and would eliminate several resident-friendly tax credits. The mayor further sought to cut climate-related investments, stipends for early childhood teachers and legal assistance.
Ms. Bowser said the council’s $21 billion budget is “unsustainable” and will lead to even higher taxes and further service cuts.
Council Chairman Phil Mendelson said the mayor’s suggested cuts hurt programs helping “the last, the lost and the least,” while the council’s proposal focuses more on social welfare spending.
That includes funding for 165 additional housing vouchers for people at risk of eviction and the creation of a child tax credit.
The council fully funded the Metropolitan Police Department’s budget request and supported spending on a new jail and the construction of a youth recreation center adjacent to the RFK Stadium site.
Congress has the final say on whether the council’s full budget takes effect or whether an emergency budget must be implemented.
Federal lawmakers’ 30-day period for reviewing the budget is set to expire next week. The District’s next fiscal year begins Oct. 1.
• Matt Delaney can be reached at mdelaney@washingtontimes.com.
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