D.C. Council weighs tax increase proposals ahead of a tight fiscal 2028 budget

The Council of the District of Columbia spent Friday, Oct. 16, examining ways the city could raise more revenue as it prepares for a difficult fiscal 2028 budget. The Committee of the Whole hearing ran roughly nine hours, according to The Washington Sun, and drew testimony from the chief financial officer’s office, business groups, advocates and residents.

No legislation was voted on. Council Chairman Phil Mendelson said afterward that the hearing was useful but that he does not expect lawmakers to act before the end of the year, The DC Line reported.

The budget backdrop

The Sun reported the District faces a gap of $600 million to $800 million next year in a budget of about $11 billion. An ArentFox Schiff analysis of the hearing put the projected shortfall at roughly $700 million and noted that the Council used about $650 million in one-time money to reverse cuts in the fiscal 2027 budget.

What was on the table

Among the proposals discussed, according to the D.C. Policy Center, the Sun and ArentFox Schiff:

• A business activity tax, sponsored by Ward 1 Councilmember Brianne Nadeau, aimed at pass-through firms, such as law, lobbying and consulting practices, that fall outside the city’s existing business franchise taxes. Supporters have estimated it could raise around $500 million a year. Critics warned of legal challenges and harm to hiring downtown.
• A 3% surcharge on investment income for individuals earning more than $400,000 and couples earning more than $500,000, also sponsored by Nadeau, under the Wealth Proceeds Tax Amendment Act of 2026 (B26-0749). Revenue estimates cited by different sources varied.
• A pied-à-terre tax, proposed by Ward 3 Councilmember Matthew Frumin, which would apply a higher property tax rate to high-value homes that are not their owners’ primary residence. Realtors opposed it, ArentFox Schiff reported.
• Separate assessment of land and buildings (B26-0777), an early step toward a land value tax.
• Higher income tax rates on top earners and broader property tax increases, which were mentioned as options without detailed plans.

The District’s sales tax is already scheduled to rise from 6% to 7% in October 2027 after the Council delayed the increase, WJLA reported. Several council members said they want to avoid across-the-board increases, especially to the sales tax, because they could fall hardest on lower-income residents, while Mendelson has suggested it could provide a steadier source of money for Metro, according to the Sun.

Competing views

Supporters of new taxes on high earners and businesses argued the revenue is needed to protect city services, while business groups and others urged caution. Officials from the CFO’s office told the Council that the largest proposals could take a year or more to put in place, and CFO Glen Lee noted that a small share of high-income taxpayers already supplies a large portion of the city’s tax revenue, the Sun reported. Former Mayor Anthony Williams spoke against the business activity tax. Mendelson told the Sun that raising taxes next year would be a choice rather than a requirement.

Ward 5 Councilmember Zachary Parker suggested a neutral body could review government spending and make recommendations.

What happens next

The hearing record remains open for written comments until 5 p.m. on Oct. 30, according to ArentFox Schiff. The proposals will be taken up in the fiscal 2028 budget process next year, after a new mayor and several new Council members take office.