Both houses of Congress are moving against Washington D.C.'s attempt to decouple its tax policy from the federal government's this week via a joint resolution, despite warnings from the city's chief financial officer.
"Enactment of the joint resolution means that the changes that were made to the Office of Tax and Revenue's forms and systems for tax year 2025 will no longer be consistent with District law," said Washington D.C, Chief Finance Officer Glen Lee.
"As a result, OTR would need to suspend the current filing season until such time as it can make the necessary changes."
The warning comes in a letter sent to House and Senate leadership that lays out the implications of Congress overriding a law passed by the City Council in November that would negate thirteen provisions of the One Big Beautiful Bill Act.
The attempted decouple would ignore the elimination of taxes on tips and overtime, an increased standard deduction, and a special depreciation allowance for certain qualified property.
"Congress has never overturned a revenue-raising law for D.C., said the city's non-voting Democratic Del. Eleanor Holmes Norton. "Doing so now would be a reckless escalation with real and lasting consequences,"
"It will threaten D.C.'s credit rating, forcing it to pay higher interest rates and costing taxpayers millions."
The CFO's analysis is based on revenue projections that include the effects of decoupling and changes that would be needed for tax forms and OTR systems.
"For the current filing season, OTR managers estimate that adjustments will likely require several months, which would extend District income tax filing deadlines into fall 2026," said Lee.
"The adjustments will also generate millions of dollars of additional expenses that must be paid by the District's General Fund resources."
The Office of the CFO estimates that denying the decouple will create a shortfall in cash collections of approximately $400 million in fiscal year 2026.
The decouple maneuver was expected to free-up $600 million in the city's budget through 2029.
Congress maintains federal oversight of the city's finances. The CFO is independent from the mayor's office; the city is required by law to maintain a balanced budget and adhere to 5-year financial plans.
City Council's move to decouple from OBBBA mirrors several states doing the same thing as the rules governing no tax on tips and overtime are proving to be particularly onerous for state and local governments.
The defections have led to the U.S. Treasury referring to decoupling as
The latest Congressional moves to nullify the decouple is newest chapter in the topsy-turvy relationship with the city and the federal government.
At the end of January, the OCFO released an end of the year financial report laying out the particulars of a balanced budget including a $4.8 billion general fund balance.
"These results were achieved in the face of unprecedented challenges, including thousands of federal job reductions and high commercial office vacancies," said Lee.
The city scored high marks in the Center on Budget and Policy Priorities
It raised income tax rate of high-income households and launched a "mansion tax," hike on residences with an assessed value over $2.5 million.
"Reports have also found that there was no drop in the number of high-income individuals in the District following the tax change; the number of residents earning over $1 million has increased since it was enacted," said the CBPP.
