A bipartisan group of lawmakers released a roughly $78 billion tax package Tuesday that would enhance the child tax credit and restore several business tax breaks, as well as boost funding for affordable housing and disaster relief. However, the deal faces many hurdles to passage.
Some congressional Democrats and progressive groups have been pushing hard to restore at least part of the expanded child tax credit that greatly reduced child poverty and stabilized families’ finances in 2021. Meanwhile, certain Republicans and business interests have sought to restore several recently expired tax measures that benefited businesses.
“American families will benefit from this bipartisan agreement that provides greater tax relief, strengthens Main Street businesses, boosts our competitiveness with China, and creates jobs,” Missouri Rep. Jason Smith, a Republican who chairs the House Ways and Means Committee, said in a joint statement with Oregon Sen. Ron Wyden, a Democrat who chairs the Senate Finance Committee. “We even provide disaster relief and cut red tape for small businesses, while ending a COVID-era program that’s costing taxpayers billions in fraud.”
“My goal remains to get this passed in time for families and businesses to benefit in this upcoming tax filing season, and I’m going to pull out all the stops to get that done,” Wyden said in the statement.
While the bipartisan and bicameral support is notable, this deal was not negotiated by the leadership and its pathway through Congress remains unclear. Some lawmakers are pushing to attach it to a must-pass bill to help ease its passage, but the legislation may need to go as a standalone bill. The lead negotiators are optimistic about the deal, but Congress has a lot else on its plate — and accomplishing anything significant in an election year always tends to be more challenging.
Plus, the deal lacks buy-in from other key players such as Rep. Rosa DeLauro of Connecticut, the top Democrat on the House Appropriations Committee who believes the child tax credit expansion doesn’t go far enough.
Child tax credit expansion
The deal would beef up the popular child tax credit, though the enhancement would not be as generous as the temporary one contained in the Democrats’ American Rescue Plan Act in 2021, which increased the size of the credit for certain families, enabled many more parents to claim it and distributed half of it on a monthly basis.
The new package calls for temporarily enabling lower-income families to claim more of the credit. It would increase the maximum refundable credit for those households who owe little or no income taxes.
Also, many low-income families currently receive the same child tax credit whether they have one or more kids. Under the deal, these households would receive the same credit for each of their children, just as higher-income families already do.
In addition, it would adjust the tax credit for inflation starting in 2024. And families would have the choice of using their earnings in the current year or the prior year, in case their earnings were volatile.
These provisions would be in effect for three tax years, from 2023 through 2025.
The proposal would help more than 80% of the 19 million children who receive no credit or a partial one because their families earn too little, according to the left-leaning Center on Budget and Policy Priorities. Once fully in effect in 2025, the provisions would lift at least half a million children out of poverty and improve the financial situation of about 5 million more children who would remain below the poverty line.
However, DeLauro and many advocates are disappointed that the deal does not go further in making the credit fully refundable, as the American Rescue Plan Act did for one year. Republicans have been opposed to broadening the credit too much, voicing concerns that it would be a disincentive to work. Notably, the deal does not change the minimum earnings threshold of $2,500 needed to begin to claim the credit.
“The proposal falls short of providing the full credit to all children in low-income families,” Sharon Parrott, president of the Center on Budget and Policy Priorities, wrote in a thread on X. “Bipartisan tax deals rarely fully satisfy anyone. But, reducing child poverty & helping families make ends meet will improve the future for millions of children & strengthen our country as a whole.”
“No other legislation this year will compare to its anti-poverty impact & income gains for low-income families,” she continued.
Tax relief for businesses
The deal also temporarily restores several business tax benefits that recently ended or have begun to phase out. The benefits were originally part of the Republicans’ 2017 Tax Cuts and Jobs Act.
The agreement would once again allow businesses to immediately deduct the cost of their US-based research and experimentation investments instead of over five years, as well as restore their ability to immediately deduct 100% of their investment in machinery and equipment. And it would relax the tightened limits on the deductibility of interest expenses, which mainly affects companies that have a lot of debt. These three provisions would run through 2025.
It would also remove the current double taxation for businesses and workers with operations in both the US and Taiwan, which aims to improve America’s competitive position with China.
Plus, the agreement would increase the amount of investment a small business can immediately write off. The cap would then be indexed to inflation, starting after 2024. This provision would not expire.
The bill also contains relief for those affected by disasters, including recent hurricanes, flooding, wildfires and the Ohio train derailment in East Palestine last year. For instance, the bill would exclude qualified wildfire relief payments received after December 31, 2019, and before January 1, 2026, from gross income. And it would do the same for East Palestine train derailment payments.
The package would enhance the Low-Income Housing Tax Credit in an effort to increase the supply of low-income housing.
It would also accelerate the deadline for filing backdated claims for the Employee Retention Tax Credit, a Covid 19-era program that has been subject to widespread fraud, to January 31, 2024, instead of April 15, 2025.
That provision is estimated to save taxpayers more than $70 billion – helping to pay for the package.
This story has been updated with additional information.
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