Bipartisan tax deal could expand child tax credit and extend business tax breaks
Updated January 16, 2024 at 4:05 PM ET
Top lawmakers on the Senate and House tax writing committees announced a deal on a temporary expansion of the child tax credit alongside a series of business tax breaks.
Senate Finance Committee Chairman Ron Wyden and House Ways and Means Committee Chairman Jason Smith negotiated the framework, which would still need to be approved by both chambers of Congress. They face a tight deadline to implement any changes to the tax code with the 2023 tax filing season beginning on Jan. 29.
The committees have been discussing the package for months, and hope to move it soon as a standalone bill, or potentially attached to a stopgap spending bill. The independent Joint Committee on Taxation estimates the plan could cost roughly $70-80 billion. Aides expect they could cover the cost by overhauling a COVID relief tax credit to save about the same amount in revenue for the government.
"Fifteen million kids from low-income families will be better off as a result of this plan, and given today's miserable political climate, it's a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead," Wyden said in a written statement on Monday.
Thelegislation, dubbed the Tax Relief for American Families and Workers Act of 2024, expands the child tax credit for three years, and allows families with multiple children to take advantage of the credit. The current cap for the refundable child tax credit is $1,600. Under the bill it would lift the amount to $1,800 in tax year 2023, $1,900 in tax year 2024 and $2,000 in tax year 2025, and begin adjusting for inflation in 2024.
The U.S. Census Bureau found that the child tax credit included in the 2021 COVID relief bill, the American Rescue Plan, significantly reduced child poverty. That version was fully refundable, and many Democrats pushed for a new version to be modeled on that bill.
Unclear path ahead
The legislation was negotiated by two of the four top tax writers in Congress but it is unclear if they will be able to win sufficient support to pass the legislation.
Last week before the details of the deal were announced some House Democrats expressed concerns that what Wyden and Smith were discussing didn't go far enough, specifically pointing to the child tax credit. Connecticut Democratic Rep. Rosa DeLauro told reporters she thought the deal tilted too much toward corporations and said "millions of kids will be left behind." Top House Democratic leaders are discussing the deal with the ranking member on the House panel, Rep. Richard Neal, D-Mass., according to a senior House Democratic leadership aide.
Senate Majority Leader Chuck Schumer, D-N.Y., embraced the deal Tuesday afternoon in a speech on the Senate floor.
"I support this bipartisan tax framework because it makes important progress to expand the child tax credit, helps address our affordable housing crisis and helps keep U.S. businesses competitive against the Chinese Communist Party," Schumer said. "As everyone knows it takes bipartisan support to get things done so I hope our Republican Senate colleagues are willing to work with us to keep this process going."
Sen. Mike Crapo, R-Idaho, the top Republican on the finance committee, called the bill a "thoughtful starting point" in a statement released Tuesday. Crapo said he was committed to working on the issue and did not endorse the plan.
"With the tax filing season approaching, there is a short timeline to advance tax legislation that can pass both the House and Senate," Crapo said in a statement. "I will continue working with my Senate colleagues to build broad, bipartisan support for a tax package that provides appropriate relief for working families and businesses."
Several Senate Democrats have shared Schumer's support, cheering the progress made in the deal.
Colorado Democratic Sen. Michael Bennet called the 2021 credit "the most significant investment Washington has made in kids and families in generations." He added about the new deal, "Although I am disappointed their proposal isn't a return to the American Family Act, eighty percent of children currently left out of the full Child Tax Credit will benefit from this deal."
Business credits could expand appeal to Republicans
The business tax credits include a provision allowing corporation to immediately deduct research and development costs, instead of over five years. Another provision permits 100% expensing of investments on equipment. And the bill increases the amount small businesses can write off.
"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. 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," Smith said in a written statement.
The bill aims to increase the supply of affordable housing by restoring a credit for low-income housing. It also increases penalties for those not complying with an employee retention tax credit created during the pandemic.
Because the U.S. does not have a tax treaty with Taiwan the bill includes a provision authorizing the president to consult with Congress and negotiate one. Most of the business tax provisions expire in three years. The ones related to small business expensing and Taiwan are permanent.
Business Roundtable CEO Joshua Bolten issued a statement backing the bill, saying, "Reviving immediate research and development expensing, full expensing for purchases of equipment, machinery and technology, and a more sensible business interest deduction would increase domestic investment, bolster U.S. innovation and create American jobs."
Lawmakers from both parties have pressed to restore the tax deduction for state and local income taxes. The 2017 tax law capped it at $10,000 and it is scheduled to expire in 2025. Many members from states with high state and local property taxes want to get rid of the cap and reinstate the deduction, but there's no agreement on a proposal to include that as part of the new tax package.
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