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Who Pays More Taxes? Virginia, Maryland or D.C.?

Everybody knows that Washington is tax-o-lific, a fiscal conservative's nightmare, a city that sucks dollars out of residents' pockets like no place else. Except that everybody is wrong.

A new comparison of the tax burdens in the D.C. area reveals that the stereotype of tax-loving District bureaucrats hoovering up residents' riches is true for the lowest income level--the $25,000 a year family indeed faces a greater burden in Washington than in suburban Maryland or Virginia.

But at the $50,000 income level, the District turns out to have the lowest tax burden of the three jurisdictions, and for the next three higher income brackets--families earning $75,000, $100,000 or $150,000 a year--the District lands pretty much in the middle, ranking third among six area jurisdictions.

The D.C. chief financial officer puts together an annual analysis of tax levels looking at income, sales, property and automotive taxes in the District, Arlington, Fairfax, Alexandria, Prince George's and Montgomery, and the results offer some surprises.

Some things are as you might have expected: The D.C. income tax surpasses the metropolitan average at every income level. But property taxes make life in the District considerably less burdensome than in the suburbs for two reasons: The rates in the city are lower, and the District offers homeowners a homestead exemption--a deduction this year of $64,000 in housing value--well beyond any such relief in the suburbs. (Virginia offers such relief mainly to the elderly.)

The District does have the highest sales tax rate at 5.75 percent (or did have--Maryland boosted its sales tax to 6 percent, up from 5 percent, as of last Thursday. Virginia's sales tax remains 5 percent.)

Of course, Virginia is still regional champion of auto taxes, even after the big rollback that was the central reason for Gov. Jim Gilmore's existence. No other jurisdiction in the region levies a personal property tax on cars. The highest gas taxes in the area are in Maryland, with 23.5 cents per gallon, compared to 20 cents in the District and 17.5 cents in Virginia (plus a two percent transportation sales tax surcharge in northern Virginia.) The District's other auto-related fees, however, tend to be much higher than suburban charges, both for registration fees and for taxes on the purchase of a new car.

All told, if you live in Montgomery County and make $75,000 a year, you face the biggest tax burden in the region, at $8,469. Prince George's comes in second at $8,408. The remaining jurisdictions are bunched closely together at a considerably lower price: D.C., $6,986, Fairfax, $6,903, Arlington, $6,886 and city of Alexandria, $6,769.

If you're up the income scale at $150,000 a year, the ranking breaks down like this:
Montgomery: $16,551
Prince George's $16,455
D.C. $15,027
Fairfax $13,317
Arlington $13,302
Alexandria $13,117

A couple of other tax curiosities:

Virginia has far higher taxes on alcohol than either Maryland or the District. But as you might expect, tobacco is taxed at a little more than half the rate in Virginia as in the other jurisdictions--old ways die hard.

The District, true to reputation, is a more expensive place in which to do business--its corporate tax rate of 9.975 percent is well above Maryland's 7 percent and Virginia's 6 percent.

Again surprisingly, the District abolished its inheritance tax back in 1987, while Maryland still charges 1 percent for spouses and children and 10 percent for indirect inheritors, and Virginia doesn't have an inheritance tax per se but does levy a tax of 10 cents per $100 of value on the probate of wills and grants.

Water also costs more in the District than in most other places. But there's an important caveat here: Most suburban jurisdictions reward customers who use less water by offering them a much lower rate per gallon. The District makes no such allowance and charges everyone the same high rate of $2.03 per thousand gallons. (Montgomery County, by comparison, charges only $1.75 per thousand gallons if you use 49 gallons or less each day; if however you use 9,000 gallons a day, your rate soars to $4.06 per thousand gallons.)

The District is no tax haven, but it's also far from the tax house of horrors it's often portrayed as. Now, if it could only make certain more of those tax dollars actually get spent on government functions....

By Marc Fisher |  January 9, 2008; 7:16 AM ET
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Comments

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As a columnist for a paper that serves not just DC but also Virginia and Maryland, why do you act as if your job is to promote DC whenever possible while denigrating the suburbs for everything they do that does not comport with your ideals?

For example, with this entry, you laud DC for having a tax rate that's less than some of the suburbs. However, you ignore the fact that you get poorer government services in DC for the money being spent. Moreover, your praise for DC's lower tax burden seems hypocritical as you frequently state that residents should be paying more in taxes.

Posted by: AlvinT | January 9, 2008 9:32 AM

As a Montgomery County resident right around that $75,000 income level, I'm not surprised that I'm getting soaked more than my brothers and sisters in the region. But when you think of value for your government, who gets it better than Montgomery County?

Posted by: josh | January 9, 2008 10:27 AM

I realize that there are a million ways to run the numbers on these things, but if the major attribute moving the DC tax burden from the top is a homeowner's exemption, how exactly does that help the many of us that can't afford the ridiculously high costs of owning a home in the District? While you have tried to make DC's tax structure look less onerous, you have shown that for low-income residents there are effectively no tax benefits. (<$25000/year=highest burden; non-homeowner=no exemption) This is why, despite my love for DC, I won't be staying long. Even with my reasonable salary I will never be able to afford a home in the District, will pay higher taxes due to the lack of a homestead exemption, and will receive the benefit of few social services. Perhaps the Council should realize that lower taxes on lower-income residents and small businesses is a form of "social service" as well. Not all social programs must involve application forms and bureaucratic handouts. Just let us keep a bit more of our paychecks and help make home ownership possible for those of us willing to save over time.

Posted by: renter | January 9, 2008 10:33 AM

I wonder if DC kept the cost of the home the same in each jurisdiction. For someone who wants a single family home the costs are much higher in a non-crime ridden part of DC than anywhere in Fairfax County. So even with the homestead deduction and lower property tax rate you are probably paying more.

I happen to rent and live in the District. I am paying more in taxes than when I lived in Virginia since most taxation for me is income taxes.

DC is clearly worse than VA. But I have heard many reasons why DC may be the same as or better than MD in taxation.

Posted by: not accurate | January 9, 2008 10:42 AM

As a couple of commenters have already pointed out, if you rent rather than own, Virginia looks a lot better. Also, you mention auto-related taxes, but because the governments require us to buy auto insurance, those costs themselves burden us in the same way a tax does, and should also be considered. In my experience, insurance rates are much lower in Virginia.

Posted by: VA renter | January 9, 2008 10:55 AM

The first post was right on the money. Even though the tax rate may place DC squarely in the middle of the jurisdictions, the quality of services received for those taxes paid is dead last. Arlington seems to give you the most bang for your buck if you can afford a house there.

Posted by: Bethesda, MD | January 9, 2008 11:06 AM

"...who gets it better than Montgomery County?"

Fairfax residents do. If you moved to Fairfax Co., you'd be saving $1500 and getting better services (including schools) with less crime.

Posted by: Ffx | January 9, 2008 11:06 AM

Yeah, but you'd have to live in Fairfax. Game, set, match.

Posted by: Lindemann | January 9, 2008 1:38 PM

Unless O'Malley's tax & spend democrats in Maryland have changed this, Maryland does offer some advantage for families with children. At last check the MD exmption is $2,400 for a dependent, in VA its $900 and DC it is $1,370, making MD the most family friendly and VA the least.

Posted by: DC10years | January 9, 2008 2:22 PM

THANKS MARK!

I noticed a drop in my taxes of roughly $800 when I moved to DC and of course a crazy reduction when I bought my DC house. Everyone told me to expect the opposite- it's just not true. We don't have a car tax and we don't have a county tax. That adds up to, you know, $500-1000 less tax.

Posted by: DCer | January 9, 2008 3:59 PM

Fairfax residents do. If you moved to Fairfax Co., you'd be saving $1500 and getting better services (including schools) with less crime.
----

Friends who moved the other way did so to eliminate the commute- now at 60 minutes per day instead of 120 minutes per day. There ain't no free lunch and the Fairfax commute is pretty awful. I remember it used to take me 65 minutes to commute to a client in Baltimore and 90 minutes to commute to a client roughly around Merrifield.

Posted by: DCer | January 9, 2008 4:02 PM

I wonder if DC kept the cost of the home the same in each jurisdiction.
------
How does the government control the price a homeowner can sell their property for? That's a new one on me.

Posted by: DCer | January 9, 2008 4:04 PM

Gandhi did not control for different housing costs in the different jurisdictions. Moreover, his assumptions about the basic makeup of an area "household" in the region is also a bit skewed. For instance,

The hypothetical family in this study consists of two wage-earning spouses and one school-age child. Families with annual gross income levels of $25,000, $50,000, $75,000, $100,000, and $150,000 for each jurisdiction are analyzed. The wage and salary split is assumed to be 70-30 between the two spouses. All other income is assumed to be split evenly. The family at each income level over $25,000 is assumed to own a single family home and to reside within the confines of the city or county. However, at the $25,000 income level, the study assumes that the household renter-occupies and not owner-occupies its housing unit, and owns one automobile. Families with annual income of $50,000 are presumed to own their home and one automobile; and families with annual incomes of $75,000, $100,000 and $150,000 are assumed to own their own home and two automobiles.

Those don't seem like assumptions that would accurately reflect too many communities in the Washington area.

Posted by: athea | January 9, 2008 4:31 PM

But Maryland just raised the corporate tax rate to 8.25%. Doesn't affect a lot of taxpayers, but if you own your own business...........

Posted by: Baltimoron | January 9, 2008 5:05 PM

This study does not include a profile of single people who rent, which includes me and many of my friends. If I remember correctly, my after-tax income went up by over $150 a month by moving to Arlington because of DC's huge income taxes.

Posted by: A | January 13, 2008 10:44 PM

A huge, "not available anywhere else," advantage of living in DC accrues to any long-time homeowner who is over 65. First, your tax assessment increase each year is capped at ten percent. Second, if the AGI on your 1040 is less than $100K your property taxes are cut by 50%. What this means to me this year (2008) is that a neighbor with a house similar to mine is paying $5,500 in DC property tax and I'm paying $1,300. It almost gets to the point where, if you're retired, you be a fool to live anywhere else. No place is perfect, and DC, to be sure, has shortcomings, but the real estate tax for older persons sure isn't one of them.

Posted by: Tom Donohoe | March 7, 2008 11:23 PM

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