(Bloomberg) -- US businesses eager for a tax deal announced by two powerful US lawmakers can’t yet bank on the corporate breaks.
Most Read from Bloomberg
The measure picked up the crucial backing of Senate Majority Leader Chuck Schumer on Tuesday but it still faces significant challenges to pass Congress in time for the Jan. 29 start of tax filing season.
The package, drafted by Democratic Senator Ron Wyden of Oregon and Republican Representative Jason Smith of Missouri, who lead Congress’s two tax-writing committees, includes roughly $80 billion in breaks for research and development, business interest and equipment depreciation, and changes to the child tax credit that benefit the working poor.
The retroactive tax break for US-based research and development would be a boon to technology and aerospace companies with large domestic research activities. Manufacturers also stand to benefit.
But their deal is just the first step to building the broad support needed to pass the biggest tax deal in years in both the House and Senate. They have just days to shore up support, with the House Ways and Means panel expected to consider the legislation on Friday, a person familiar with the plans said.
Representative Richard Neal of Massachusetts, the top Democrat on the House panel is still discussing the plan with his colleagues.
Mike Crapo of Idaho, the top Republican on the Senate panel, wants to see changes made to the bill. “There are details that have to be worked out,” he said, adding that he doesn’t see Congress meeting the Jan. 29 deadline.
So far, Republican House Speaker Mike Johnson has been silent on the agreement. President Joe Biden is also not yet on board.
“He remains committed to fighting for the full expanded Child Tax Credit. We appreciate Chairman Wyden and Chairman Smith’s work toward increasing the Child Tax Credit for millions of families and supporting hundreds of thousands of additional affordable homes, and look forward to reviewing the full details of their agreement,” White House spokesman Michael Kikukawa said.
Those obstacles work against efforts to include the tax deal in urgent legislation needed to avert a shutdown on Saturday, which the Senate will begin to debate later Tuesday. Without the deadline, it is easier for lawmakers to hold up the tax bill and seek changes.
The package will likely need strong Democratic support to pass the House given the razor-thin House GOP majority which means any three Republicans can work to block legislation from consideration.
The deal’s child tax credit provisions would help the families of 15 million children by raising after-tax income. It would also change the low income housing tax credit to allow for the building of 200,000 new affordable housing units, according to a statement from Wyden. The left-leaning think tank Center for Budget and Policy Priorities says the proposal would lift 400,000 children out of poverty in the first year.
The proposal would not change the current limit deductions for state and local taxes. Republican lawmakers from high-tax states said last fall that Johnson promised them that any tax bill that passes Congress will address the $10,000 cap.
The House Freedom Caucus is still studying the details, but some conservatives have objected to expanded child tax credits as a disincentive to work. The bill would be partially paid for by ending claims for the Covid-era Employee Retention Tax Credit, which some Republicans argue helps small businesses.
Democrats’ votes are needed to pass in the House and they may seek changes to the child tax provisions. Progressives such as Connecticut’s Rosa DeLauro last week called for the full expansion of the credit from a current maximum of $2,000 per child to $3,600 for young children.
Wyden and Smith’s deal would help the working poor by making a larger portion of the tax credit available to families with low tax obligations. Currently those families aren’t allowed access to the full credit. Poor families with more than one child would gain the most.
The $2,000 child tax credit also would be indexed to inflation.
Colorado Senator Michael Bennet, who co-authored the pandemic-era expansion of the child credit, in a statement urged fellow Democrats to accept the deal and come back later for more. Democratic Senator Sherrod Brown, who faces a tough reelection fight in Ohio in a race that could determine which party controls the Senate, also backs passing the measure. Brown has long advocated for an expanded child tax credit, and he also secured a tax break for residents of East Palestine, Ohio on compensation paid to them by Norfolk Southern after last year’s rail disaster.
“This bipartisan tax deal is a win-win that will cut taxes for Ohio families and Ohio manufacturers,” Brown said.
The proposal would restore several expired or expiring business tax breaks such as allowing companies to immediately deduct the full cost of US-based research and development instead spreading the benefit out over five years. Limiting the tax break to domestic R&D is a disappointment to industries with large foreign activities like pharmaceuticals.
The deal also restores the ability for businesses to immediately write off the purchases of equipment like machines and vehicles, and it allows for the deduction of some types of interest.
Boeing Co., NextEra Energy Inc., and General Motors Co. are some of the companies that will benefit under the return of the equipment write off, which generally helps boost manufacturing and utility companies that are highly capital intensive.
The Business Roundtable and the National Association of Manufacturers have made passing the tax package a top lobbying priority.
The deal includes bipartisan legislation to spur investment between the US and semiconductor superpower Taiwan by providing double taxation relief for businesses operating in the two democracies.
Lawmakers say the package would be paid for by ending new claims for the troubled employee retention tax credit program on Jan. 31, after a public notice.
--With assistance from Steven T. Dennis and Billy House.
(Updates with Crapo remark, in eighth paragraph.)
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.