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D.C. handles half million commuters daily: non-resident reciprocal income tax could bring in windfall.

It's not surprising that city leaders in Washington, D.C. want to enact a non-resident reciprocal income tax.

Of the 730,448 people who work in the District of Columbia, nearly seven in ten-- some 493,714--live somewhere else. Despite the continued decentralization nationally of work sites and places of residence, the 1990 figures represent "the greatest volume of in-commuting to the District of Columbia ever recorded in a census,', according to Census Bureau analyst Phil Salopek.

The volume of daily non-resident worker commutes into D.C. was nearly twice as high as that recorded by the cities of San Francisco (260,000) and Philadelphia (248,000).

The D.C. commuting flow and similar data for other metropolitan areas is contained in a new Census Bureau computer file, "Census of Population 1990: Number of Workers by County of Residence by County of Work." The entire file (#STFS-5), available on 9-track computer tape or tape cartridge, can be acquired by calling the Census Bureau's Data User. Services Division at (301) 7634100.

Most commuters to D.C. live in the neighbering Maryland counties of Prince George's (141,950) and Montgomery (103,320), followed by the Virginia counties of Fairfax (94,502) and Arlington (43,842).

D.C. residents work where they live. Of the 304,428 workers who-lived in the city in 1990, about 78 percent also worked in the city. The 78 percent from D.C. who both lived: and Worked in the same jurisdiction was the highest percentage among all Washington area governments. Next in line were-the city of Frederick, Md. and Montgomery County, Md., at 60 percent each, followed by Fairfax County, Va., at 50 percent.

Non-Resident Income Taxes

Non-resident income taxes compensate communities for the extra costs they incur in serving commuters who live in other jurisdictions. The taxes are used most commonly by cities in the states of Ohio, Pennsylvania, and Michigan. The income taxes apply to city residents as well, often at a higher rate.

Most non-resident city income tax rates fall in the 0.50-2.25 percent range, and are calculated on gross salaries, wages, and commissions earned in the taxing community.

Under non-resident reciprocal income tax systems, commuters are given a credit on their home jurisdiction taxes for taxes paid to the work jurisdiction. In this way, commuters who live in one place and work in another do not pay any more in total taxes.

Reciprocal arrangements are operating in both intrastate and interstate sottings.

To punch up their copy, most journalists refer to nonresident reciprocal income taxes as "commuter" taxes. Calling a non-resident reciprocal income tax a "commuter" tax is accurate, but it also suggests that commuters will pay more in taxes. That is not true in systems that have full reciprocity. Only in non-reciprocal or partially reciprocal non-resident income tax systems do commuters actually pay more in taxes than they normally would.

Although non-resident reciprocal income taxes may be tax-neutral to individuals, such taxes do create state and local government tax winners and losers. Some observers contend that even reciprocal non-resident income tax schemes also cause businesses to flee the urban core and create the threat of needless taxing wars between central cities and their surrounding suburbs.

But for those communities who have or can get the authority to tax non-resident income, such taxes seem to many observers to be a sensible and fair way to finance the costs of services that non-residents receive from their workplace governments.

The Future

As cash-strapped city governments search for new revenue sources, proposals for non-resident reciprocal income taxes will continue to surface, as they have in recent years in Hartford, Conn.; Charlotte. N.C.: and Providence, R.I. So will protests against such taxes.

According to a recent NLC study, "City Distress, Metropolitan Disparities and Economic Growth," economic disparities between central cities and their suburbs hurt the entire metropolitan region. The study found a direct relationship between city-suburban economic disparities and regional economic growth. Metropolitan areas with small disparities tend to be more prosperous. As disparities increase, overall regional employment growth declines.

Thus cities and suburbs form a single, interdependent economic unit whose economic welfare and futures are joined. The prosperity of the doughnut and the hole are inseparable.

The NLC study concluded that "the capacity and willingness of cities and suburbs to work cooperatively to effectively address their common economic needs will be an important determinant of their mutual economic future. Where suburbs turn their backs on core cities, or cities refuse to cooperate with their suburbs, they are undermining their own economic prosperity."
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Title Annotation:includes related information on the Philadelphia, Pennsylvania non-resident income tax; Washington, D.C.
Author:Fletcher, Jeff
Publication:Nation's Cities Weekly
Date:Jan 25, 1993
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