The political hijinks over taxing Washington, D.C. residents on out-of-state municipal bonds took a strange and final turn this week.
By a 7-6 vote, the D.C. Council decided to delay a new tax on out-of-state muni bonds. Under the new measure, only out-of-state bonds purchased after Dec. 31, 2011, will be subject to the tax. At the same time, the Council voted to raise income taxes on residents who earn at least $350,000 annually.
The vote caps a rancorous, months-long debate over taxing out-of-state bonds. When the measure was originally passed in June, it was to be applied retroactively to bonds purchased after Jan. 1, 2011. After an uproar by investors who bought the bonds with a good-faith understanding they wouldn’t be taxed, the Council reversed itself and delayed the tax for a year. Last month, however, Mayor Vincent C. Gray reversed the reversal, setting the stage for this week’s action.
The bill applies the city’s 8.5% income tax on income generated from muni bonds outside of D.C. The city’s new income tax raises rates from 8.5% to 8.95% on D.C. residents who have more than $350,000 in annual taxable income.
The decision to raise the income tax was conceived in private among some members only a day before the Council meeting, according to the Washington Post.
The mayor is expected to allow the increase to become law.