Senate backs compelling D.C. to adopt no tax on tips, overtime in initial vote

The Senate gave initial approval Wednesday to a bill forcing the District to adopt a series of tax cuts included in the One Big Beautiful Bill, from which city leaders wanted to decouple in order to address a growing revenue hole in the local budget.

The 51-47 vote puts another rewrite to the District’s tax code on the docket after the D.C. Council and Mayor Muriel Bowser opted out of the federal tax breaks last year, such as no tax on tips or overtime, to prevent the loss of $600 million in city revenue.

A final vote on the resolution could be held as soon as Thursday.

Senators from Maryland and Virginia, all Democrats, slammed the resolution for overriding the will of Washingtonians and messing with the District’s tax policy on the fly.

“This resolution would literally change the rules in the middle of the game while taxpayers have already started filing returns,” said Sen. Angela Alsobrooks, Maryland Democrat. “It would require revising tax forms and systems, and could force taxpayers to refile returns. It would create confusion for families, businesses and tax professionals.”

She argued the District’s business community supports preserving the current tax code, saying hospitals, realtors, developers, hotels and other major employers do not support the Republican-backed resolution.

But Sen. Rick Scott, the Florida Republican who championed the Senate version of the bill which already passed through the House, said the bill helps families, service workers and law enforcement professionals to pocket more of their own cash.

“The DC Council decided to benefit from these people instead of helping them. They’ve decided they deserve these people’s money more than people do. This isn’t right,” he said. “Not only does this hurt people by preventing them from keeping more of their hard earned wages, but also hurts the economy and will end up hurting the city as a whole.”

Outside of no tax on tips or overtime, the federal tax breaks include exemptions for seniors receiving Social Security; no taxes on personal interest on car loans; specific tax breaks for business manufacturing and research; and an increase to the standard deduction.

D.C. officials backed out of the new exemptions so they could fund a child tax credit program and keep city finances afloat after their coffers took a hit from the Trump administration’s desire to trim the size of federal government.  

Twelve states pulled out of the tax cuts to varying degrees since they don’t jibe with their budget forecasts, a point that Democrats hammered during Wednesday’s floor speeches.

“The important part is that this is part of a system of federalism, and it’s a choice that states and localities get to make,” said Sen. Tim Kaine, Virginia Democrat. “Blue and red states have made decisions to decouple in the aftermath of dealing with the reconciliation bill from last year. Alabama is a very red state. They decided to decouple their state tax system from some of the provisions in the reconciliation bill.”

Mayor Muriel Bowser and D.C. Council Chairman Phil Mendelson, both Democrats, penned a joint letter last week arguing the proposal interferes with the District’s autonomy under Home Rule.

The two further warned of delays in tax collection and increased costs for the city due to the midyear change in policy.

The resolution marks another instance of Republicans using their constitutional authority over the District’s governance.

Congressional lawmakers enforced a $350 million budget cut on the District last year by removing routine language in a temporary spending package.

In August, President Trump deployed the National Guard and sent federal agents into D.C.’s streets as part of a crime crackdown in the nation’s capital. Guardsmen have orders to remain in the District through the end of this year.

Republicans in Congress further threatened to pull federal funding from the city if it didn’t tear up a Black Lives Matter street mural near the White House. Ms. Bowser did remove the mural, while saying it was already scheduled to be replaced by new artwork for the nation’s 250th anniversary celebration.