As was detailed when Scherzer signed this new deal, the District of Columbia imposes an income tax but technically does not impose a ”jock tax”. Though that isn’t for lack of effort. The D.C. mayor typically has attempted to include a “jock tax” in the district’s annual budget nearly every year. However, under the U.S. Constitution, Congress has authority over the District, which it exercises by requiring D.C. to submit it’s annual budget for approval. Congress has nixed the “jock tax” every time it has been included in the proposed budget. This is most likely due to the fact that states would be required to give their professional athletes credit for taxes paid to D.C. – directly reducing the revenues in the states in which those athletes live and (more importantly) in which Congressmen represent. Since there are no full congress members from D.C., not much political capital is spent annually voting against assisting D.C.’s revenue raising efforts. The fact that the District of Columbia has one of the highest income tax rates in the U.S. – 8.95% for the highest income bracket – does not help their case, either.
The District can currently tax income, but the Home Rule Act exempts individuals from paying state income taxes if they don’t live in D.C. The result is that D.C.’s professional athletes can avoid the relatively high tax rate by living outside the District each offseason, something previously-mentioned Max Scherzer took advantage of when he signed a $210 million contract with the Washington Nationals earlier this year. Scherzer lives in Florida, which does not have a state income tax. Other D.C. athletes have done the same. Fellow Nationals Jayson Werth and Ryan Zimmerman live year-round in Virginia, which has only a 5.75% tax rate, and Bryce Harper resides in Nevada, which also does not collect a state income tax.
Implementing a “jock tax” seems counter-intuitive, since the current income tax exemption arguably draws some athletes to D.C. But the “jock tax” provision of the budget is only a small piece of the bigger picture for D.C. residents. More than half of the District’s $13 billion budget is funded through taxes collected from D.C. residents and businesses, but decisions on how that money is spent must first be approved by Congress. Every year the District submits its budget request to Congress, who considers the budget as part of one of its federal appropriation bills. And approval can take months, especially if there are broader arguments over the federal budget.
This year, things could be turning around. The injunction was vacated by the Court of Appeals, which sent the case back to the local D.C. Superior Court to decide if the Act is legal. Because the Court of Appeals’ decision came so late in the budget process, the Council had only prepared one District budget containing both federal and local portions. The District submitted the budget through the usual federal appropriation process, and after approval from the mayor and Council, a second, identical budget was sent to Congress as “ordinary” legislation. Two live versions of the District’s budget are currently making their way through competing approval processes, a situation unprecedented on Capitol Hill. While unprecedented, one precedented issue remains in both budgets – if either become law unedited, D.C. will have a “jock tax”.
That being said, D.C. shouldn’t be holding it’s breath for a “jock tax” quite yet. Because one budget was submitted through the federal appropriation process, it is likely that any alterations by Congress will be final, at least for this year. D.C.’s future budget autonomy lies in the hands of the D.C. Superior Court, which may not take up the case until after the D.C. Council actually passes a budget under the Budget Autonomy Act. Until then, D.C.’s mayor and the D.C. Council Chairman have said that they would consider the budget passed as soon as it clears the 30-day review period without being overturned.
While this is all currently up in the air with much speculation, Scherzer and other Nationals should keep a close eye on D.C.’s developments – if D.C. does implement a “jock tax” Scherzer would lose around $700,000 to D.C. taxes.
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