Lawmakers make D.C. area less taxing

April 11, 1992|By Gilbert A. Lewthwaite and Karen Hosler | Gilbert A. Lewthwaite and Karen Hosler,Washington Bureau

WASHINGTON -- President Bush and members of Congress, recently at odds over perks, have a little-known perk in common -- exclusion from state income taxes in Washington, D.C., Maryland and Virginia.

In the nation's capital, the president and the lawmakers, as well as presidential appointees confirmed by Congress and congressional staff from members' home states, are freed from District of Columbia income taxes under a break Congress gave itself in 1949.

Congress extended this exclusion to cover its members living in Maryland and Virginia in 1977. However, the state exclusions do not cover appointees or staff.

Senators and congressmen representing Maryland and Virginia and who are permanent residents of the area must pay their state income taxes, as must the non-voting district delegate in the House of Representatives.

The rationale behind the tax break: Federally elected officials should not be taxed here while also paying income taxes back home. However, they would not actually be double-taxed

because states usually allow reciprocal tax credits for payments made to other states.

"Usually you would not be taxed on the same amount of income to different states," said Ed Karl, accountant with the tax division of the American Institute of Certified Public Accountants. "The question is, if you use local services, should you pay local taxes? Theoretically, most people would agree with that concept."

The law has these effects:

* It makes life easier for all national legislators. They only have to file in their home states. Business representatives who maintain a residence in their home states but work elsewhere have to file in both places.

* It can be profitable. Figures for fiscal 1990 from the independent Tax Foundation show the average per capita state income tax levy in Maryland was $599, in Virginia $498 and in the district $1,051 -- all more expensive than the national average of $387.

* It is a great deal for the 88 members of Congress who come from states without any income tax; they pay no state income tax anywhere on their $125,000 annual salaries.

Currently, there are seven states without income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire and Tennessee tax only income from dividends and interest.

Mr. Bush, who claims Texas as his state of residence for voting purposes, pays no state income tax either. That break has saved him $165,000 in taxes over the past decade, according to Citizen Action, which ran anti-Bush ads on the subject in the early primary states this year.

Certainly the members of Congress thought the break was worth fighting for in the 1970s.

The first bill they passed to obtain the exclusion was vetoed by President Gerald R. Ford in 1976. He noted: "This law benefits a narrow and special class of person [and] violates, in my view, the basic concept of equity and fairness by creating a special tax exemption for members of Congress while other citizens who are required to take up temporary residence in the Washington area -- or elsewhere -- do not enjoy a similar privilege."

Congress passed a similar bill the next year, and President Jimmy Carter signed it into law.

Maryland, which vehemently opposed the exemption, went as far as the Supreme Court to try to get $225,000 in back taxes owed by 125 members of Congress who resided in the state before the 1977 law was passed. The Supreme Court declined to hear it, and the state's claim died.

Marvin Bond, spokesman for the Maryland Comptroller's Office, said the 1977 law was passed by Congress after the Maryland tax authorities began pressuring out-of-state congressional residents to pay for the services they used.

In Maryland, the exemption is now accepted grudgingly.

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