Where does the District get its Money?

As I said on Tuesday, our main priority at Capital Commonsense is explaining the status quo so debates about how to change it for the better are more are informed going forward. In today’s post, we’re looking at where the District of Columbia gets its money. Taxes will be discussed in much greater detail in anticipation of the fall Council debate on raising them, but we wanted to kick off the conversation with a District Revenue 101 to ground future pieces.

In fiscal year 2024 (October 2023-September 2024), the District raised about $11.9 billion in revenue. We rely on revenue tools that most places split between levels of government—a state-style income tax along with a local property tax, business franchise taxes, sales taxes, parking fees, and traffic fines. (A common theme you’ll see across policy issues is the District’s unique structure as both a state and city complicates its governance and makes comparing us to other states and cities more challenging.)

Nearly all of this nearly $12 billion flows into the General Fund, which pays for schools, police, health care, trash collection, and the rest of day-to-day government. (The figures below cover our own-source revenue. They do not include federal funding through grants and Medicaid reimbursements.)

General Fund revenue by category

Individual income tax

$3.14 billion: 26% of own-source revenue

Our largest source of revenue is the income tax. The District uses a progressive structure with higher segments of income taxed at higher rates—starting at 4% on the first $10,000 and climbing to 10.75% on income above $1 million. Collections tend to grow faster than wages themselves because the rates rise with income. Collections also tend to swing with the stock market, as capital gains and bonuses are also reflected in the income tax bucket.

Who pays the income tax

Tax year 2022 · the top ~12% of filers pay about two-thirds

The income tax’s weight sits overwhelmingly at the top. The breakdown below uses the most recent data from our CFO. Filers earning $200,000 or more, about one in eight in the District, supply roughly two-thirds of the income tax. Households above $1 million, fewer than 1% of filers, account for about a quarter of it. At the other end, the nearly 60% of filers earning under $75,000 together pay less than 10%, as we would expect under our progressive structure.

Middle and upper middle class taxpayers are vital to the District’s progressive tax base. White-collar professionals—picture a household headed by two federal employees or two nonprofit lawyers—are central to making the numbers work.

Keeping these taxpayers in the District is critical to fiscal sustainability, as this is not New York City replete with billionaires with hundred-million-dollar penthouses. For comparison, filers earning more than $1 million in New York City account for roughly 40% of personal income tax liability. The District is more reliant—as a share of income tax collected—on the middle and upper middle class filers earning between $200,000 and $500,000.

Note: this distribution reflects tax-year 2022 liability (about $2.73 billion), an earlier and slightly smaller figure than the $3.14 billion in FY 2024 collections cited above. The shares are stable.

Property tax

$2.92 billion · 25% of own-source revenue

A close second is the tax on land and buildings. Homes are taxed at a low rate ($0.85 per $100 of the home’s assessed value), while commercial buildings — offices, hotels, and the like — are taxed at roughly double the rate and supply the larger share ($1.65-$1.89 per $100 of value, depending on whether the property is valued at under $5 million, between $5-10 million, or greater than $10 million). Property tax revenue is most exposed to the economic health of Downtown, as we are currently seeing with falling property values in the city’s core.

On the residential side, a range of policies, including the Homestead Deduction and caps on annual increases, hold down bills for homeowners, seniors, and residents with disabilities. (As a reminder, federal government buildings, embassies, universities, and religious institutions pay no property tax.)

Sales and use tax

$2.00 billion · 17% of own-source revenue

The District’s third revenue pillar is the tax on purchases. The general rate is 6%, but the system is tiered: restaurant meals are taxed at 10%, hotel stays at nearly 16%, and commercial parking at 18%. Much of this revenue comes from visitors, conventions, and downtown foot traffic, so like commercial property taxes it is closely tied to tourism and office activity. (The general rate is scheduled to rise to 7% in October 2026.)

Business taxes

$1.13 billion · 10% of own-source revenue

Businesses operating in the District pay a franchise tax of 8.25% on the net income they earn here. It comes in two forms: the corporation franchise tax, which raised about $932 million, and the unincorporated business franchise tax, roughly $201 million, which applies to partnerships and similar firms. These collections are volatile and fluctuate with the broader economy.

Payroll Taxes

The District levies a true payroll tax: an assessment on employers that funds the Paid Family Leave program. On July 1, 2024, that rate rose sharply — from 0.26% to 0.75% of covered wages. For most of the program’s life, every dollar raised by the tax was dedicated to the leave fund and stayed outside the General Fund entirely.

That changed in FY 2025. Under current law, any revenue the tax collects above what the Chief Financial Officer certifies is needed to keep the leave fund solvent is now redirected into the General Fund for general use—an estimated $76 million in the first year and about 2/3 of the revenue collected by the tax.

This is the first time paid-leave taxes have funded anything other than paid leave. This shift began just after FY 2024 it does not appear in the chart, but this is an important revenue source to watch, particularly as the Council and incoming Mayor begin to discuss revenue more seriously.

Other taxes and fees

$1.00 billion in other taxes · $1.69 billion in non-tax revenue

The remainder comes from a long tail of smaller sources. On the tax side, this includes deed recordation and transfer taxes paid when properties are bought and sold, the estate tax, the Sports Facilities or “Ballpark Fee” (tax on businesses with $5 million or more in gross receipts) to cover the bonds issued to finance Nats Park, taxes on public utilities, insurance premiums, and telecommunications, and excise taxes on things like gas, cigarettes, alcohol, and vehicles. No single one is particularly large by comparison, but together they add up to about a billion dollars.

Beyond taxes, the District takes in significant non-tax revenue: fines, licenses and permits, charges for services, interest earnings, and the net proceeds of the DC Lottery. A further category—special-purpose (“O-type”) funds analogous to user fees—comes from fees and assessments that are dedicated to the agencies that collect them. Combined, these non-tax sources contribute are about $1.7 billion.

Federal Impact

One driving factor behind the District’s revenue situation is the federal government. Government buildings, embassies, universities, and religious institutions occupy a large share of our most valuable land but pay no property tax on it. Federal law also bars the District from taxing the income of the hundreds of thousands of commuters who work in the city but live in Maryland or Virginia. Those constraints narrow our tax base and help explain why the individual income tax carries much of the load.

Later next week we will continue our tax series with a look at how the revenue picture has changed over the last decade.

About these figures. Amounts reflect fiscal year 2024 gross General Fund collections as reported by the Government of the District of Columbia, Office of the Chief Financial Officer, Office of Revenue Analysis, in D.C. Tax Facts 2025. “Own-source” revenue excludes federal grants, Medicaid payments, and other federal transfers, which fund a large additional portion of the District’s roughly $21 billion total budget. Figures are shown gross of dedicated transfers to funds such as WMATA, the Housing Production Trust Fund, and the Washington Convention Center.