The Senate February 12 approved, on a 49-47 vote along party lines, H.J. Res. 142, disapproving of the District of Columbia Council's D.C. Income and Franchise Tax Conformity and Revision Temporary Amendment Act, to exclude some "One Big Beautiful Bill Act" (OBBBA) provisions. The joint resolution, approved by the House February 4, nullifies legislation enacted by the District of Columbia (D.C.) City Council, and reinstates certain D.C. tax code provisions in place before the enactment of the DC legislation on the standard tax deduction, taxation of tipped wages, and depreciation of qualified property, etc.

There continues to be confusion about the validity of the congressional action, as the D.C. Council reportedly contends their legislation is still law and the review period ended February 11. A spokeswoman for Delegate Eleanor Holmes Norton said the city contends the 30-day review period begins when a bill is transmitted to Congress. "Congress says when the 2nd chamber publishes it in the record," she said. "A court has never weighed in."

OBBBA conformity is an issue elsewhere too. "Most states use federal definitions of income as the starting point for their own income taxes, and so the federal tax breaks can also reduce the amount of money states can tax," the New York Times reported February 11. "That means the tax law passed in Congress is hitting state revenues, prompting some states to proactively exclude the new federal tax cuts from their tax codes."

Congress — Both the House and Senate are out of session today and scheduled to be in recess next week, despite the absence of a successful resolution to extend Department of Homeland Security funding. Members of both chambers are reportedly to be given 48 hours' notice before being required to return to Washington, should a DHS funding deal emerge.

Energy tax — The IRS on February 12 released Notice 2026-15, which provides guidance under IRC Sections 45X, 45Y, and 48E for determining the material assistance cost ratio (MACR) for a qualified facility, energy storage technology, or eligible component for purposes of determining whether there was material assistance from a prohibited foreign entity (PFE). The notice also provides limited general guidance related to the definition of a PFE and requests comments regarding definitional, anti-circumvention, and other issues for future guidance.

The 45X Advanced Manufacturing Production Credit, 45Y Clean Electricity Production Credit, and 48E Clean Electricity Investment Credit were subject to new credit restrictions under the "One Big Beautiful Bill Act" (OBBBA) to provide that the terms qualified facility, energy storage technology (EST) and eligible component do not include items that include material assistance from a prohibited foreign entity (PFE). IRS said the Notice "provides that Treasury and IRS intend to propose regulations with respect to the definition of a PFE and the calculation of the material assistance cost ratio that taxpayers must use to determine whether there was material assistance from a PFE. The notice also details how to use interim safe harbors authorized by the OBBB and provides example calculations under those safe harbors."

Trade — The House February 11 approved, 219-211, a resolution (H. J. Res. 72) by Rep. Gregory Meeks (D-NY) to terminate the national emergency declared by the finding of the President on February 1, 2025, in Executive Order 14193, "Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border," which imposed tariffs on Canada. Republican Reps. Don Bacon (R-NE), Brian Fitzpatrick (R-PA), Jeff Hurd (R-CO), Kevin Kiley (R-CA), Thomas Massie (R-KY) and Dan Newhouse (R-WA) voted in favor of the resolution, and Rep. Jared Golden (D-ME) voted against. A similar resolution (S. J. Res. 77) passed the Senate last year. President Trump would be expected to veto bills challenging his tariffs, and an unlikely two-thirds supermajority in each chamber of Congress would be required for a veto override.

Politico observed February 11 in a story titled, "Tariff votes hand Republicans an unwanted referendum on affordability," that House votes on tariff policies expected in the coming weeks — after the chamber failed to extend a ban on congressional challenges to President Trump's tariffs that expired January 31 — are "handing Democrats a powerful tool to hammer Republicans on affordability issues ahead of the November midterms."

The House vote was a topic of discussion during the February 12 Senate Finance Committee hearing on the U.S.-Mexico-Canada Agreement (USMCA), and some Republicans like Thom Tillis (R-NC) expressed concern about imposing tariffs on the two nations. At the hearing, which came as the US, Mexico and Canada prepare for statutory review of the deal, Chairman Mike Crapo (R-ID) said he has been concerned about enforcement of commitments in areas like digital trade and intellectual property, but believes the perfect shouldn't become the enemy of the good and, "This trilateral relationship should not be taken for granted."

Some witnesses said the US walking away from the agreement — as some reports have suggested is under consideration — would be devastating to industries. Senator Raphael Warnock (D-GA) raised the issue of tariffs raising costs for consumers, suggested USMCA uncertainty affects investment decisions, and expressed concern that investment would be affected if the US were to withdraw from the agreement.

Ranking Member Ron Wyden (D-OR) urged stronger enforcement actions, saying, "USTR must ensure Americans get what they bargained for, but that's going to take a partnership with Congress, a commitment to enforcement, and transparency with the public."

International tax — On February 11, Senate Democratic Whip Dick Durbin (D-IL), Senator Jack Reed (D-RI), and Rep. Lloyd Doggett (D-TX) reintroduced the "Stop Corporate Inversions Act." According to a press release, the bill would:

• treat a combined foreign corporation as a domestic corporation under two circumstances:
• if the shareholders of the former US corporation own more than 50 percent of the new combined foreign corporation, or
• if the affiliated group that includes the combined foreign corporation is managed and controlled in the United States and engages in significant domestic business activities in the United States
• repeal the 60% and 80% ownership tests as well as the inversion gain applicable under such circumstances
• maintain the foreign substantial business exception under IRC Section 7874 by exempting the affiliated group if it has substantial business activities in the foreign country where the new combined corporation is incorporated

CBO — The Congressional Budget Office February 11 released the Budget and Economic Outlook: 2026 to 2036, stating:

• The deficit will total $1.9 trillion in fiscal year 2026 and grow to $3.1 trillion in 2036
• Debt held by the public will rise from 101% of GDP in 2026 to 120% in 2036

The report said the 2025 reconciliation act (OBBBA, Public Law 119-21) increased CBO's projections of deficits by $4.7 trillion, while higher tariffs reduced deficits by $3 trillion.

Capital markets - Securities and Exchange Commission Chairman Paul Atkins testified before Congress twice this week, on Wednesday at the House Financial Services Committee and on Thursday at the Senate Banking Committee. It was the first time Atkins had appeared before Congress since his initial Senate confirmation hearing, and he managed to avoid getting into the sort of caustic exchanges that Treasury Secretary Scott Bessent engaged in before the same committees last week. In response to questions from Banking Committee Ranking Democrat Elizabeth Warren (MA) about the SEC's decisions to drop enforcement cases against a number of crypto companies and individuals, Atkins often replied that he didn't know which data Warren was referring to, or that many such decisions had predated his arrival at the SEC, or that several crypto enforcement cases had simply been questions of "registration," meaning companies were prosecuted because they declined to come into the SEC and register as securities issuers or exchanges. Atkins said that in many such cases, the new leadership at the SEC simply did not agree with former chairman Gary Gensler that the crypto products in question were actually securities.

On the House side, Atkins sat next to a thousand-page corporate 10-K report to dramatize his view that such mandatory annual disclosures are burdensome and not useful to investors, arguing they should be more grounded in "materiality." Other questions at the hearings dealt with technical issues like the Consolidated Audit Trail (CAT) that tracks market transactions; the influence of proxy advisory services like Glass Lewis and ISS; the current absence of any Democratic commissioners on the SEC; Chinese stock issuers; and possible changes to the SEC's definition of an "accredited investor."

With Congress scheduled to be out next week, What to Expect in Washington will not be published.