Earlier this week, the U.S. House of Representatives and the Senate Homeland Security and Government Affairs Committee passed a bill along party lines that would force the District of Columbia to override the decision of local elected officials and implement all of the costly and inequitable federal tax cuts passed last summer as part of H.R. 1, the federal tax and spending law also known as the “One Big Beautiful Bill Act” (OBBBA).
This move comes after D.C. chose to decouple from certain OBBBA provisions, which together are expected to save the District roughly $658 million in local tax revenue over five years – savings that were going to go toward expanding D.C.’s Child Tax Credit and Earned Income Tax Credit, while also helping stabilize D.C.’s overall budget. These policy decisions, made by elected D.C. Council members, determined how tax cuts would flow to District residents and whether very wealthy residents would have their D.C. taxes cut along with their federal tax cuts.
Congressional action to prohibit District lawmakers from governing, which now moves to the full Senate for a vote, adds chaos to D.C.’s revenue projections and spending plans. Nullifying D.C.’s tax laws at this point would deliberately upend the District’s ability to govern itself, plan its budget, and administer a working tax system.
Decoupling from Federal Provisions is Conventional
D.C. is not alone in its desire to protect its residents from last year’s damaging federal tax changes. And the District has the right to determine how local tax dollars are spent, including how to structure tax cuts for its residents.
Overall, the 2025 tax law will funnel more than $1 trillion in tax cuts to the top 1 percent and multinational corporations over the next decade. The federal provisions reduce state revenue since many state tax codes mimic parts of the federal tax code (because doing so can theoretically make tax calculations simpler and easier to enforce). But many states are wisely choosing to “decouple” from the federal changes to chart their own course and protect funding for existing resources.
At least nine states have already decoupled from at least one provision of the 2025 tax law, and several others are debating doing so. Throughout the history of the modern federal income tax, every state with an income tax has chosen not to conform to at least some federal provisions – and every single state is, right now, decoupling from at least some elements of federal tax law’s income definitions.
Congress is treating D.C.’s decoupling as radical and unprecedented, but in fact, defining a state’s income tax base is the most fundamental part of the state fiscal autonomy on which our federal structure is built. The conviction that states should be able to decide what’s best for their residents crosses partisan lines. For example, South Carolina Republican Sen. Sean Bennett recently said, “Let us decouple and put together a South Carolina-focused, South Carolina-centric tax policy that supports our budget” and Rep. Brandon Newton echoed, “We can’t be at the mercy of whatever D.C. does, whether it’s President Trump or President AOC.”
D.C. leaders Should Determine Tax Cuts for Their Residents, Not Congress
D.C.’s elected policymakers have the best understanding of how to serve their residents, and with this move Congress would be interfering with the lives of people that they were not elected to represent. Just last November, the D.C. Council carefully considered and decoupled from 13 of the 84 tax provisions of the OBBBA including both individual and business tax breaks, using the funds to improve the lives of low- and middle-income households. District lawmakers followed evidence-based research to determine how to best boost the incomes and improve the lives of low- and middle-income families through robust, refundable tax credits. Those well-informed decisions trump blindly following the lead of federal tax cuts that, ultimately, do little to support District workers.
For example, the Council unanimously decided to decouple from the federal Qualified Small Business Stock (QSBS) exemption, a tax break for wealthy venture capitalists that almost entirely (94 percent) benefits people with incomes over $1 million. They also deoupled from deductions for tipped and overtime income, and the car loan interest deduction. All of these provisions have received criticism across the political spectrum.
Reasonably, the Council stated that the provisions from which they decoupled were chosen for both financial and pragmatic reasons; not only would they devastate local revenues, it would be administratively challenging to adopt the changes so close to tax filing season. Repealing D.C.’s carefully considered tax law at this stage would be reckless. At a deeper, institutional level, the rule weakens democratic self-government, undermines the legitimacy of local policymaking, and creates a chilling effect on future reforms.
Nullifying D.C.’s Tax System in the Middle of Tax Season Would Have Sweeping Consequences
Senate leadership is likely to take up this issue within the next week. If the resolution becomes law, it would send D.C. into administrative chaos while forcing significant revenue loss, increased inequality, far less funding for key services, and long-term damage to D.C.’s ability to govern itself.
Operationally, overriding D.C.’s tax law in the middle of tax season would cause widespread confusion, likely leading to higher error rates, delayed refunds, and major new administrative costs. Fiscally, the rule would be harmful for D.C.’s most vulnerable populations. The rule would gut funding for health care, education, housing and homeless programs, disaster relief, and local tax credits that are proven to be effective in reducing poverty. The EITC and CTC improvements passed by the D.C. Council are estimated to reduce child poverty by one-fifth.
D.C.’s tax policy is not unusually aggressive or procedurally flawed; on the contrary, decoupling from certain federal tax provisions is increasingly becoming the norm. Congress is merely interfering with D.C. policy since D.C., with more than 700,000 residents, lacks statehood and voting representation. It’s an easy target for certain lawmakers to signal their opposition to progressive fiscal policy without bearing any of the political costs of disrupting D.C.’s fiscal system. Ultimately, this resolution is not about tax conformity but about whether Congress will respect D.C. residents’ right to govern themselves – and the broader democratic principle of self-governance for states and localities across the country.
