Tax debates often involve arguments about how taxes compare in DC, Maryland, or Virginia. A new report from the DC Fiscal Policy Institute found DC’s to be the lowest in most cases. Virginia residents without cars would also pay low levels of tax.
The study looked at a variety of hypothetical families in three income levels: renters earning $50,000 in annual income, and homeowners earning $100,000 or $200,000. For each case, it totals the likely income, property, and car taxes being paid for singles or married couples without children or with 2 children.
In almost all scenarios, DC’s tax burden is the lowest. The major exception is single households making $200,000 without or with children, where taxes are lower in Virginia. For married couples, Virginia’s taxes rise above DC’s mostly due to the car tax.
A separate DC CFO analysis also studied homeowners earning $50,000, and also found lower taxes in DC than in Maryland and Virginia.
The report assumes each single person owns one car, as do the couples earning $50,000, while the couples of higher incomes own two cars. The car tax ranges from about $550 (in Fairfax) and $600 (in Arlington) for the households making $50,000, up to $1,960 (Fairfax) and $2,150 (Arlington) for the two-car families making $200,000.
That means car-free households would save around $500-2,000, making Virginia cheaper for several of the categories. However, anyone who moves to Virginia for the lower taxes only possible for car-free residents would have to move to the relatively few places in the state where it is feasible to live entirely without any car, even for occasional errands or weekend trips, or where Zipcar is very close by. Owning cheaper cars would also allow Virginia families to save money on taxes.
Naturally, this just compares average households of these sizes. Each individual’s tax burden will vary. Living in a less expensive home means lower property taxes, for example. However, that assumes someone can find a less expensive house they are willing to live in.
Property taxes are highest in Prince George’s County, even though average home values are lower there. This analysis assumes lower house prices for its hypothetical families in Prince George’s County, with the most expensive homes belonging to DC and Arlington residents.
Nevertheless, DC residents pay lower property taxes due to a far lower tax rate and the homestead deduction for those who live in their property. Prince George’s, on the other hand, has the highest property tax rate in the region, and with home prices having declined more than elsewhere, many owners are paying taxes on valuations above their actual home price.
The report didn’t consider sales taxes, because those vary greatly based on what people buy and where. The Virginia sales tax is one percent lower, but Virginia taxes groceries, while the others don’t. Also, many DC residents shop in the suburbs for certain items and many Maryland and Virginia residents buy things in DC.
In tax debates, opponents of raising taxes often claim that wealthy residents will move to Maryland or Virginia to save money. The report doesn’t look at much wealthier households, though studies from a recent tax hike in New Jersey suggest that very few rich people move to avoid taxes.
In moderate to upper-income households, moving to Maryland would not save money; moving to Virginia might if the households are willing to live without cars or with very cheap ones.