Close But No Cigar: The Politics of Class, Race, and Taxes

By :: June 26th, 2014

This week, the District of Columbia City Council approved a major tax reform bill. And, as it happens, some important—but unspoken-- issues of race and class are underlying key changes to the revenue code.

Earlier this year, the DC Tax Revision Commission proposed a broad rewrite of the city’s tax code, including two modest but well-designed reforms. One would rationalize taxation of tobacco, where different products are taxed in different ways at different rates. The second would expand the city’s sales tax base to include some widely used services including health clubs and yoga studios, and barber shops and beauticians.

But once the reform plan got to the D.C. City Council both of these proposals were changed—and in interesting ways that reflect class and race in the nation’s capital.

First, the tobacco tax. As in many jurisdictions, the current law is enormously complicated.

Cigarettes are subject to a per-pack excise tax of $2.50 plus a wholesale-level sales tax of 36 cents—effectively an 80 percent rate. Products such as chewing tobacco, smokeless tobacco, and snuff are subject to a 75 cents per ounce excise tax. Premium cigars and pipe tobacco are taxed at the regular sales tax rate of 5.75 percent. Little cigars are taxed as cigarettes and non-premium cigars are taxed at a 12 percent rate.

The reform commission sensibly proposed taxing all tobacco products at the 80 percent rate that cigarette buyers now pay. And the city council agreed—with one exception: Premium cigars would continue to be taxed at today’s low rate.

Exactly what deal was cut to make this happen is not clear but it is hard to get the image of the proverbial smoke-filled room out of my mind. When it comes to local politics those high-end cigar shops—and their well-heeled customers—don’t just blow smoke.

The second change is even more interesting. The council accepted most of the commission’s base-broadening proposals for the sales tax. But while it ended up taxing health and yoga club users, it exempted customers of barber shops and beauty parlors.

What happened? Here’s a guess: For generations of African-Americans, barber and beauty shops have been second only to the church as a community institution. They are where people go to collect the latest neighborhood gossip, argue about sports, and—not incidentally--talk politics.

On the other hand, health clubs, yoga studios, and the like are popular with the young, affluent, and largely white young professionals who are rapidly gentrifying the District. They are far less politically active—at least when it comes to local elections-- than many middle-class black residents. And, they seem much less price sensitive when it comes to things they want. $12 martini anyone?

The yoga studios didn’t take this, umm, lying down. In 2010, they got the city to back away from a similar tax and this time they fought hard for another exemption.

But they lost. The council agreed to tax the denizens of health clubs and yoga studios but not the customers of barber shops. At the same time, it voted to tax tobacco products that are used by poor and middle-class people, but not the high-end cigars enjoyed by the wealthy.

Race and class were not the only factors in these decisions, but like much of what happens in D.C., they weren’t irrelevant either.

One lesson from all of this: A better approach might be a tax on sales of all goods and services—with no exceptions. The rate could be low and the system could be made progressive with a credit for low-income households. As we have learned once again, when lawmakers start granting exceptions, the politics of winners and losers is inevitable.

 

2Comments

  1. Michael Bindner  ::  3:41 am on June 27th, 2014:

    The first rule of DC politics is that it is all about race, even if it is not about race. Of course, it is not just white people who smoke the hand rolled cigars and certainly not just the rich ones. Before I quit, I often enjoyed a nice Peruvian smoke from my favorite tobacconist. A good smoke can be found all over town, however – not just on Wisconsin Avenue or in Georgetown.

    On the barber shop issue – yes such shops are a staple in the African American community – but there is a shop on Wisconsin Avenue that is as well. It has been operated by the same family for decades, although Tony died or retired (sure he is dead by now – and I am just as sure the Camillo is holding down the fort. There is a class element, of course. Workers from young lawyers to old waiters need to look spotless in many locations. Of course, so do their rich bosses. Because it is work related, a low tax rate is a nice break for workers.

    The amazing thing is that the major tax rates were not included – of course, with Jack Evans on the Council, no proposal to increase taxes on the wealthy can get very far – even though previous studies show that in general, rich people don’t move with the tax rate. Rich contributors may complain a bit – but that is as far as it goes. Nothing on the property tax either – while DC does have a special rate for vacant properties, this might be the place to test out the Land Value Tax – at least a small bite. No one expects a wholesale conversion to Georgeism just yet.

  2. jim jaffe  ::  9:23 am on June 27th, 2014:

    from a tax policy perspective, the suggestion be taxed makes a lot of sense. it would be a big win for simplicity. but this is about politics in an evolving situation where there’s a delicate balancing act between the old folks with lots of tradition (the barbers) who until recently have had power and the new folks with lots of money who are gradually taking power (the yoga people). this latter group opts to move into the district knowing that property and income taxes are relatively stiff. they can afford to pay a bit more for their health club membership. and I’ve seen no indication that they — as opposed to those who operate the gyms — had a lot of trouble with the new tax