Washington, DC’s Council will hold a public hearing on October 16 on proposals to raise revenue, among them a 3% surtax on the investment income of the District’s highest earners. Ward 1 Councilmember Brianne Nadeau’s bill would apply above US$400,000 of modified adjusted gross income for single filers and US$500,000 for joint filers.
Unemployment in the District stood at 5.7% in August, the highest rate in the country. Over the past year, DC lost 27,000 jobs, or 3.6%, the only such loss the Bureau of Labor Statistics reported among the 50 states and the District.
Council Chairman Phil Mendelson is in no hurry to answer with higher taxes. At a press briefing on Monday, he made clear he did “not want to sit here and say we will raise taxes,” according to Axios. He also told reporters that no tax increase would come to a vote this fall, according to City Cast DC.
Federal template
Nadeau introduced the Wealth Proceeds Tax Amendment Act of 2026 in July, modeling it on the federal Net Investment Income Tax (NIIT), a 3.8% levy dating from 2013. Both apply to the lesser of two figures: Net investment income, or the amount by which a filer’s income exceeds the threshold.
In an example from Nadeau’s office, a household with US$480,000 in earned income and US$40,000 in investment income would pay 3% on the US$20,000 above the line. That comes to US$600.
Covered income would include capital gains, dividends, interest, rents, royalties, non-qualified annuities, and income from businesses that are passive activities for the owner. Wages, Social Security benefits, active business income, and distributions from qualified retirement plans would fall outside it. So would gains on a primary residence up to the federal exclusion of US$250,000 for single filers and US$500,000 for couples.
Unlike the federal tax, the DC version would count interest on municipal bonds issued by other states, though not interest on federal obligations, which the District cannot tax. Income from certain incomplete gift non-grantor trusts would count as income of the person who funded them. New York and California adopted similar rules in 2014 and 2023 against a structure long pitched to high-tax-state residents as a way around state income tax.
Estates and trusts would face a threshold of just US$16,000. The bill would cover taxable years beginning after December 31, 2025, so if passed as written, it would reach gains already realized this year.
None of the thresholds would rise with inflation. Federal NIIT thresholds for individuals have not moved since 2013 either. By the National Taxpayers Union Foundation’s calculation, the US$250,000 joint threshold set that year equals roughly US$360,000 in 2026 dollars.
Top rates
Axios and City Cast DC both describe the proposal as a wealth tax. It would tax the income that assets generate, not the assets themselves. That separates it from the annual net worth levies of countries such as Norway and Spain, and from California’s proposed one-time 5% billionaire tax.
For residents with taxable income above US$1 million, the surtax would stack on DC’s top income tax rate of 10.75%, lifting the District’s marginal rate on investment income to 13.75%. California’s top rate, the highest of any state, is 13.3%, according to the Tax Foundation.
Layer federal tax on top, and a DC millionaire would face a combined top statutory rate of 37.55% on long-term capital gains before deductions. On interest and short-term gains, which the federal government taxes at up to 37%, the figure would reach 54.55%. The long-term figure adds the 20% federal capital gains rate and the 3.8% NIIT to the District’s 13.75%.
Revenue case
Nadeau’s office cites an informal estimate from the District’s Office of Revenue Analysis of close to US$200 million in the first year and more than US$100 million annually after that. An official fiscal impact statement awaits a committee report, which would follow the hearing.
Maryland imposed a 2% surcharge on net capital gains in 2025 for filers with federal adjusted gross income above US$350,000. Minnesota has charged 1% on net investment income above US$1 million since 2024. Further west, Washington State’s 9.9% tax on income above US$1 million is due to start in 2028, though it faces a constitutional challenge and a repeal effort.
The DC bill mirrors Minnesota’s formula for part-year residents. That formula computes the surtax as if the filer lived in the District all year, then scales it to the share of his investment income allocable to DC.
Opposition
Mayor Muriel Bowser, who leaves office in January, does not “support any more tax increases,” according to the Washington Informer. Regional business groups oppose the surtax too. In a June letter, the Greater Washington Board of Trade and several allies warned councilmembers that people and businesses “can relocate only a few miles and cross jurisdictional boundaries.”
Their letter addressed an earlier version of the idea, pegged to the federal thresholds of US$200,000 and US$250,000. Critics had warned that version could reach households earning US$250,000, according to City Cast DC, and the introduced bill doubles both figures.
December deadline
The two-year Council Period ends in December. Any bill that has not cleared the Council by then lapses and would have to start over in the new term.
Axios frames the fall debate as groundwork for next year’s budget, likely the first under Janeese Lewis George. A Ward 4 councilmember and self-described democratic socialist, she won June’s Democratic mayoral primary and, according to City Cast DC, backs a wealth tax framed around relief for working families.
Whatever the Council passes must also survive congressional review under the Home Rule Act, which gives Congress 30 legislative days to block it. Congress used that power in February. Its resolution voided a temporary Council law decoupling DC from parts of the One Big Beautiful Bill Act, clearing the House 215 to 210 and the Senate 49 to 47.
President Donald Trump signed the resolution on February 18. Delegate Eleanor Holmes Norton noted beforehand that Congress had never overturned a District revenue-raising law. Mendelson argued that the Senate voted a day after the review window closed.
Second homes
Two councilmembers, Mendelson and Ward 3’s Matt Frumin, have each floated a tax on second homes, according to City Cast DC. The chairman’s team calls his bill more of a conversation starter. One version would charge 2.5% a year on upscale homes that are not the owner’s primary residence, raising an estimated US$130 million over four years, according to Axios.
David Lesperance, founder of Lesperance & Associates, places Washington among municipalities “from NYC to San Francisco” that “are looking at new ways to raise tax revenue to support municipal services.” Politicians weighing their options, in his view, “have to consider how the targets of any proposed measure will respond.”
Through a pied-à-terre tax, Washington “may be able to take advantage of the fact that many wealthy non-residents own homes there as they spend time in the nation’s capital lobbying.” A higher sales tax, by contrast, “will impact both residents and non-residents,” he adds.
The District has already taken the broader route. Its general sales tax rises from 6% to 7% on October 1, under budget legislation the Council passed in 2024 and amended last year.
Paired with the investment surtax, a second-home levy would reach both sides of a move. Someone who stays would owe the surtax; someone who shifts his domicile to Florida but keeps his Georgetown townhouse could owe the second-home charge instead.
Exit routes
Across the Potomac lies the lowest-tax exit nearby. Virginia taxes income above US$17,000 at 5.75% and has no investment surcharge. Lawmakers in Richmond introduced a millionaire bracket and a state-level NIIT this year, but neither passed, and the millionaire-bracket bills carry over to the 2027 session.
Leaving on paper is not enough. District rules treat as resident anyone domiciled there at any point in the year or keeping a home there for 183 days or more.
In 2024, Attorney General Brian Schwalb’s office secured US$40 million from Michael Saylor and MicroStrategy, now called Strategy. The settlement, in which both denied wrongdoing, resolved allegations that Saylor falsely claimed Florida and Virginia residency while living in a Georgetown penthouse. Schwalb’s office called it the first suit of its kind under the District’s updated False Claims Act.
Moving abroad ends the District’s claim. Federal tax, including the 3.8% NIIT, follows US citizens wherever they live, and shedding it requires giving up citizenship, which can trigger the US exit tax. Americans are renouncing at the highest sustained rate on record.
