Breaking federal tax breaks for DC residents and businesses
- jonetta rose barras
- 9 hours ago
- 8 min read
LAST year, during the city’s annual budget deliberations, Ward 5 DC Councilmember Zachary Parker was on the hunt for money to fund a local child tax credit; undoubtedly, he hoped it would be the signature legislation for his first term, allowing him to comfortably campaign for reelection. However, even with the possibility of an end-of-the-year surplus, the city’s economy was on the ropes, making it difficult for him and the legislature’s other spendthrifts to satiate their addiction.
Not to be constrained by disciplined, responsible budgeting and financial management, councilmembers and a gang of advocates found a vein on Capitol Hill in the so-called One Big Beautiful Bill Act (OBBBA). Favored by President Donald Trump and his unrepentant sycophants, this spending package included a bevy of federal tax cuts that many on the far left dismissed as giveaways for the rich.
There was much truth in that accusation.
However, there were also some benefits for average working- and middle-class residents along with small-business owners. On the surface, they may not have looked like much: increases of between $750 and $1,500 in standard tax deductions, a tax exemption on tips and overtime wages, and the inclusion of interest paid on car loans as a reportable expense, among other things.
In an economy like the present where the cost of everything seems to have skyrocketed, small changes can make a big difference. Further, experts often note that tax cuts can help stir an ailing economy.
Forget all of that. Before many DC taxpayers could fully educate themselves about how local implementation of the OBBBA might impact their proverbial bottom line, Council Chair Phil Mendelson and then-Chair Pro Tempore and current mayoral candidate Kenyan McDuffie introduced the DC Income and Franchise Tax Conformity and Revision Temporary Amendment Act of 2025. Initially approved in November, it cut the cord between sections of the federal tax code, including portions of the OBBBA, and the DC tax code — a process called decoupling.
A fight between Congress and District elected officials erupted when disapproval resolutions were introduced late last month in the Senate and the House of Representatives. By Wednesday afternoon the Senate Committee on Homeland Security and Governmental Affairs and the full House had each affirmed the disapproval, and the White House had formalized its support for undoing the DC law. A Senate vote is expected soon.
Republican Sen. Rick Scott of Florida argued on Wednesday that the DC Council’s action “defies logic.” He said it was “unfair” to working-class residents, specifically citing those in the service industry.
Before making counterarguments, two Democrats on the committee — New Hampshire Sen. Maggie Hassan and Connecticut Sen. Richard Blumenthal — commented on their hearing the previous day, which included testimony from victims of the brutal treatment perpetrated by U.S. Immigration and Customs Enforcement (ICE) agents. “That forum has resonated with people all across the country,” said Blumenthal.
He and Hassan agreed that the District also had rights. “The people of DC through their elected representatives also have a right to decide their own tax policy,” said Hassan.
The majority of committee members approved the resolution. That afternoon, voting along party lines, the full House sustained the disapproval resolution. It’s almost certain that the Senate will follow suit, given that the matter is not subject to a filibuster and therefore needs only GOP votes to proceed. That act will effectively repeal the temporary amendment; the council has yet to consider a permanent bill.
Congressional action will cause the city to scramble. DC Chief Financial Officer Glen Lee has predicted that a necessary delay in tax collections — to prepare new tax forms and publish new guidance — could cost the city as much as $400 million during the fiscal year that ends Sept. 30.
What’s that adage about being penny-wise and pound-foolish?
What were District officials thinking? Did they not realize that some Hill staffers live in the city and would be adversely affected by the decoupling? Were city pols completely oblivious to the fact that the OBBBA was signature legislation for Trump’s second-term administration that he and others planned to use as an example of Republicans’ attention to the needs of working-class families? Had not the city been previously cast in these same people’s reelection narratives? Is there no one in the John A. Wilson Building with any political savvy?
Let’s not sugarcoat this: DC’s home rule is not true political freedom. It is now and always has been independence on a chain. If elected officials want to test the strength of congressional restraints, they had better think more strategically. More importantly, they had better ensure their actions won’t injure their posse: District residents.
In reality, the average DC citizen likely did not know anything about the decoupling. The Mendelson-McDuffie bill, including its summary, seemed deliberately written to obscure its effects.
In plain speak, however, the legislation permitted the council to swoop in and snatch hundreds of millions of dollars — nearly $600 million over four years — that should have gone to District residents and business owners via local tax relief.
Equally troubling, legislators passed the measure — adopted initially as emergency legislation — without even one public hearing during which taxpayers could have weighed in. Call that a drive-by robbery or under-cover theft.
Do you think my language too harsh?
At the very least, the Mendelson-McDuffie legislation was yet another example of the councilmembers’ growing penchant for operating in the dark. Over the past several months, I have raised the alarm about this behavior by politicians who seem to think that they have been elected to office to satisfy their own desires and career cravings rather than to serve the citizens whose hard-earned income pays their salaries.
Ironically, this week as the decoupling fight heated up, some DC advocates, like Stasha Rhodes, chastised Senate and House members for moving to repeal the local law “without a single vote from the 700,000 people who live here.”
“This is not oversight,” added Rhodes, a senior policy adviser for DC Vote who helped organize a virtual press conference on Tuesday attended by Del. Eleanor Holmes Norton and Maryland Sen. Chris Van Hollen.
Rhodes stressed that neither the Senate nor the House held any public hearing before acting on the disapproval resolution.
True enough, but are DC legislators any different?
Arrogantly, they think they are: “I find it very offensive if Congress steps in like this,” Mendelson declared during his regular press briefing before the council’s monthly legislative session.
If the disapproval resolution is affirmed, “it’s just going to be a mess,” he predicted.
For all intents and purposes, the decoupling legislation is a de facto or hidden tax increase. Mendelson and others masked that fact with the argument that, once again, Congress is trampling on DC’s rights. After all, a dozen or so states decoupled some of their tax laws from the federal government’s OBBBA provisions.
DC is not like any other states, however. The Constitution gives Congress direct control over
the nation’s capital and the local government.
Let’s be clear, I am no fan of federal interference. I think DC residents should have voting representation in both chambers of the federal legislature. I am flummoxed by Republican congressional representatives’ obvious assumption that local legislation and governance here and elsewhere must adhere to their policy views. And I am deeply troubled by the fact that while they are all in our business, they are tragically unwilling or unable to control a seemingly demented president who each day violates large portions of the U.S. Constitution.
Those observations and legitimate complaints about the feds cannot be used as a tacit endorsement of the fiscal shenanigans that continue to occur in the DC Council. Nor should this episode of congressional intrusion be deemed the same as last year’s fight over the House reconciliation bill that forced the city to implement a $1 billion budget cut in the middle of the fiscal year.
This is not that. This is a case of council greed and fantastical thinking. This is an example of lawmakers seemingly being unsatisfied with the city’s $22 billion budget.
District elected officials remain dedicated to grabbing and spending every penny without establishing realistic priorities and goals; without evaluating the cost efficiency or effectiveness of existing programs; without providing quality oversight to ensure the people who most need government are actually being served by government; and seemingly without a keen appreciation and understanding of the political dynamics in which the District finds itself and how harm could befall DC’s fragile independence.
Politicians’ irresponsible actions are too often abetted by advocates like Erica Williams, executive director of the DC Fiscal Policy Institute, who put the onus on Congress and not District officials. She said the repeal “guarantees a deeper economic crisis for our community.”
When reporters asked whether local residents were being denied certain tax benefits, Williams retorted that the local decoupling law “did not change or diminish the federal tax cuts.” DC simply “chose not to duplicate them locally.”
Except the result is that District residents did see a step-down for some benefits. Consider, for example, that the federal standard deduction under the OBBBA for a single filer is $15,750. For local DC taxes, it would be $15,000 this year absent the repeal.
Under the OBBBA, qualified senior citizens can take an additional $6,000 deduction. Under the Mendelson-McDuffie legislation, the District would prohibit it on local taxes.
Moreover, much is being made about DC’s new child tax credit. There is an existing federal child tax credit. There also is a federal earned income tax credit.
Truthfully, the decoupling was unnecessary. In his September financial report, CFO Lee had made clear that his revised projections accounted for “the estimated revenue impact of legislative changes included in the District’s FY 2026 Budget Support Act and the federal One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, the fiscal impact of which is more than offset by the increased revenue.”
Specifically, the CFO estimated that OBBBA would cost DC about $171.6 million in fiscal year 2026, $151.5 million in 2027, $139.4 million in 2028, and $100.8 million in 2029. None of those years were expected to close with a revenue deficit, according to the published report.
Lee reiterated that point this week in a letter to Republican and Democratic congressional leaders, including House Speaker Mike Johnson, House Minority Leader Hakeem Jeffries, Senate Majority Leader John Thune and Senate Minority Leader Charles Schumer. The Joint Resolution “would not have a material impact on the four-year financial plan approved by the Mayor and DC Council, and by Congress,” wrote Lee.
“Personal income taxes are strong because of capital gains earnings by higher-income households, and corporate tax revenues are expected to increase due to strong growth in earnings by businesses,” he added.
That last bit shouldn’t be ignored. The District is collecting a bunch of money from residents and businesses who stand to benefit from local application of the federal OBBBA changes; by nixing those provisions, DC officials had more money available for favored programs and policies, like the child tax credit. Equally important, that money would come from higher-income households and businesses — on whom many councilmembers, including Parker, have long wanted to impose a tax hike.
Mission accomplished by pitting the needs of low-income residents against those of working- and middle-class residents.
Lee also told congressional leaders the primary problem is administrative. If the DC Income and Franchise Tax Conformity and Revision Temporary Amendment Act of 2025 is disapproved or repealed, previously revised tax forms will have to be revised again. Staff will have to be retrained.
When I asked the spokesperson for the CFO, he was unable to provide the exact cost for undoing the work that had been done. He repeated that the CFO wrote in his letter to congressional leaders that they have estimated the price tag to be in the millions. Pushing back tax-filing deadlines will affect revenue collections for this fiscal year by about $400 million. The city will make that up in FY 2027, however.
Of course, there is the political reality that elected officials who were planning to use a child tax credit as the centerpiece of their reelection bids or campaigns will have to find some other policy to tout.
Don’t expect any weeping from those on the Republican side of the aisle.
On Tuesday, Norton argued that their actions represented “nothing short of deliberate administrative and fiscal sabotage of the nation’s capital.”
Some people may agree. However, from my vantage, DC finds itself in this moment because of the reckless, self-sabotaging behavior of its elected officials.
Let’s see how they clean up the mess they have created with their latest miscalculation.
Comments