D.C. Council spent Friday debating seven ways to raise taxes. The next mayor will live with what they decide.

Friday's hearing in the Wilson Building lasted hours and settled nothing. That is exactly why it matters.

The D.C. Council's Committee of the Whole convened on October 16 to take testimony on seven separate proposals to raise taxes, a session Council Chairman Phil Mendelson had been building toward since summer. Against the backdrop of a darkening economic outlook, the Council weighed seven ideas during a marathon hearing, including a new business activity tax and others primarily affecting wealthier residents. No vote was taken. The proposals are not yet law. But the hearing was the most direct public reckoning the city has held in years over who pays for D.C. government, and the numbers driving it are stark.

Next spring, city leaders will have to contend with a budget hole estimated to fall somewhere between $660 million and $837 million. That estimate has grown. A September 2026 revenue estimate lowered recurring revenue for fiscal year 2028 by another $144 million, raising the gap to at least $680 million. Medicaid changes, overtime costs, and debt service could push it higher still.

For residents, this is not an abstract accounting problem. The Council already drew down its reserve fund to keep programs alive through the current budget year. Chairman Mendelson called the hearing after having to use one-time funds to cover popular programs such as the Pay Equity Fund, which were cut or significantly reduced, with many programs now carrying no funding in the FY 2028 budget and beyond. More one-time maneuvers are not available. The city has, functionally, run out of financial runway for kicking this down the road.

The seven proposals on the table

The hearing covered seven proposals, including a new wealth proceeds tax, transitioning to a land value tax, a new pied-a-terre tax, a sales tax increase, a real property tax increase, and an income tax increase.

The one that generated the most discussion was the Business Activity Tax, or BAT. Probably the highest-profile, most lucrative, and most controversial idea, it would take aim at law firms, consultancies, and lobbying shops owned by nonresidents who don't pay the city's normal business tax because profits are treated as revenue for the owner, and Congress has prohibited D.C. from taxing nonresident income. Estimates put the BAT's potential yield at $275 million to $500 million a year before any offsetting tax cuts.

Ward 1 Councilmember Brianne Nadeau is pushing a different approach: the Wealth Proceeds Tax. Her legislation would impose an additional 3% tax on certain investment income earned by higher-income D.C. residents. The tax would apply to individuals making $400,000 or more per year, or couples making $500,000 or more. Nadeau's own office has estimated it could produce $200 million in the first year, but a more cautious outside analysis landed lower. Nick Johnson, a senior fellow with the Institute on Taxation and Economic Policy, testified that the measure could generate closer to $139 million in a typical year.

"The simplest proposal before us is the wealth proceeds proposal, because it is actually just a surtax," Nadeau told 7News.

Ward 3 Councilmember Matt Frumin is zeroing in on a narrower target: luxury second homes. His proposal would establish higher property taxes for qualifying properties assessed at approximately $2.6 million or more that are not an owner's primary residence, with about 600 properties potentially affected.

The land value tax proposal drew pointed skepticism from at least one expert witness. Yesim Sayin, executive director of the D.C. Policy Center, testified before the Committee and acknowledged that taxing land more heavily than buildings has intellectual merit, but said she is not convinced the District can produce land assessments reliable enough to administer a fair tax system, especially for income-producing properties.

A split on the core question

The hearing exposed a real disagreement, not just over which taxes to raise but over whether taxes are the right tool at all.

Joe Bishop-Henchman, vice president of the National Taxpayers Union Foundation and an ANC member in Ward 5, said: "For the past several years we've said, 'Maybe we need to wait until everyone is back in the office and DOGE is done and tourists are back.' So we've been doing a lot of one-time things, and we're coming to the end of these measures."

But Bishop-Henchman was not arguing for tax increases. The D.C. Policy Center's Sayin took a similar skeptical position from a different angle. Her testimony focused on how tax increases cannot compensate for spending that outpaces tax base growth, and she encouraged the Committee to pursue more analysis before implementing a Business Activity Tax or Land Value Tax given the current fiscal context.

The District's Chief Financial Officer has warned of declining revenue and employment over the next few years, driven by federal job losses, inflation, and an evolving economy. That context makes the case for caution on business taxes stronger among critics who argue that piling new costs onto employers in a weakening job market could accelerate the very revenue decline the city is trying to stop.

Nadeau pushed back on that framing. "We cannot keep asking the people who need the most to give the most, while asking those who have the most to give nothing more," she said.

Frumin put it plainly: "The city faces a big shortfall and we're going to have to solve it either by cuts or revenue increases or a combination of the two. The track record of the city has been to come forward with a revenue raiser at the last minute in the budget process with no deliberation around it. What this hearing is is a constructive conversation about what are our options."

Lewis George's shadow over the room

The Council is not governing in a vacuum. The person who will actually have to work with whatever tax structure emerges is Janeese Lewis George, the Democratic nominee for mayor in the 2026 election. She steps off the Council when she takes the oath of office, expected on January 2.

D.C. faces an estimated 2028 budget deficit of $600 million to $800 million that the new mayor will be saddled with. Lewis George has already signaled where she stands on at least one of the proposals. She supports a business activity tax on for-profit businesses operating in the city, including companies headquartered outside D.C. that often avoid local taxes.

What happens next could tee up big changes once Lewis George takes office, as she's expected to on Jan. 2. But the Council's choices before then matter too. Mendelson has been direct that he does not expect the Council to vote on any of these proposals this fall. "I don't think we will be doing that this fall. I think there's a possibility that we will be doing that next budget because there's been an increasing pressure," Mendelson said at a September press briefing.

That puts the real decision point in spring 2027, when Lewis George will be sitting in the mayor's chair and the Council will be assembling a budget with no reserves left to tap. The October 16 hearing was the setup. The hard vote comes later.

One wrinkle: Friday's hearing was intended to examine the advantages and disadvantages of the various proposals, not to approve new taxes. The Council has not committed to adopting all, or any, of the proposed changes. But the political dynamic has shifted. Before Friday, the Council could plausibly say it had not yet studied the question seriously. It can no longer say that.

What D.C. Residents Should Watch

• The November 3 general election. Every tax proposal discussed Friday becomes more or less politically viable depending on who wins council seats. This will be the first council election to use ranked-choice voting following the implementation of Initiative 83. New council members take office in January, just as the FY 2028 budget process begins in earnest.
• The next revenue estimate. If revenues come in higher than projected, the first $150 million does not go to new spending but to refilling a reserve account the Council drew down to balance this year's budget. Only what comes in above that threshold would be available for anything else. If revenues underperformed, the fall hearings on new taxes become considerably more urgent.
• The Business Activity Tax specifics. The BAT is the biggest potential revenue source and the most structurally complicated, targeting law firms, lobbyists, and out-of-state professional services firms that have long avoided D.C.'s income tax. Whether a final bill can be drafted to survive legal challenge under the congressional prohibition on taxing nonresident income is an open question no witness definitively answered Friday.
• Lewis George's first budget proposal. She is expected to submit a budget as early as March 2027. Whatever revenue measures she includes, or refuses to include, will tell residents more about her actual fiscal posture than anything she has said as a candidate. The FY 2028 gap will be on her desk on day one.

Sources: The Washington Post | WJLA/7News | DC News Now | D.C. Policy Center | The Washington Sun | Greater Greater Washington | Washington DC Magazine