Washington, D.C. — A congressional effort to repeal a Washington, D.C., tax law could create major disruptions in the middle of tax season and strip hundreds of millions of dollars from the district’s budget, according to a new analysis from the Center for American Progress.
The legislation would nullify changes enacted in 2025 by the D.C. Council that were designed to help working families and reflect local budget priorities. It is a long-standing principle in tax law that Congress does not have the power to require localities to adopt the same changes made to federal tax code within their state tax code. Overturning D.C.’s tax law would deprive the district of an estimated $658 million in revenue, raise child poverty, and force the city to halt and rework its tax-filing system just as residents are already filing their returns.
“This Congress has increasingly interfered with the basic governance and financial stability of Washington, D.C., threatening residents’ autonomy,” said Lily Roberts, managing director for Economic Policy at the Center for American Progress and co-author of the analysis. “For Congress to override local decisions in the middle of tax season creates confusion for families, undermines the district’s budget, and sets a troubling precedent for federal interference.”
CAP’s analysis highlights:
- Congress would be overriding a common state tax practice. States and localities across the country regularly “decouple” from federal tax changes to reflect their own economic conditions and budget needs. These decisions do not change anyone’s federal tax obligations; they simply determine how state or local taxes are calculated.
- Changing tax policy midseason would cause widespread disruption. Because many D.C. residents have already filed their taxes, reversing course now would likely force the district to suspend processing, redesign forms and online systems, coordinate changes with tax preparers, and require some residents to refile. This would increase errors, delay refunds, and create additional administrative burdens.
- The revenue loss would have real consequences for families. The D.C. Council’s changes included an expanded earned income tax credit match for working-class filers and a new child tax credit of up to $1,000 per child. These policies were projected to reduce child poverty in the district by 20 percent while helping families manage the high cost of living.
- D.C. is being subjected to unusual and repeated fiscal interference. Congress has rarely used its authority to block D.C. laws and has never overturned a locally passed tax or budget law since home rule began. At the same time, D.C. residents pay more in federal income taxes per capita than residents of any state yet lack voting representation in Congress.
The analysis warns that interfering with D.C.’s tax code during filing season could also delay the collection of federal income taxes paid by district residents, with implications for federal as well as local finances.
Read the analysis: “Overturning D.C.’s Tax Law Would Infringe on Common State Tax Practices and Threaten the District’s Budget and Fiscal Autonomy” by Lily Roberts and Corey Husak
For more information or to speak with an expert, please contact Christian Unkenholz at [email protected].