Bipartisan deal to expand child tax credit, revive business tax breaks advances in Congress

By: - January 19, 2024 8:00 pm

A House tax-writing committee on Friday, Jan. 19, 2024 approved on a bipartisan vote a bill that would temporarily expand the child tax credit and bring back certain Trump-era tax breaks for businesses. (Photo by Jennifer Shutt/States Newsroom)

WASHINGTON — A plan to temporarily expand the child tax credit and revive tax breaks for businesses received overwhelming bipartisan support in a committee vote Friday, a rare moment of compromise in a divided Congress that’s headed into a heated election year.

The tax policymakers of the GOP-led U.S. House Committee on Ways and Means voted 40-3 to send the Tax Relief for American Families and Workers Act, or H.R. 7024, to the House for a full floor vote.

The Biden administration is “encouraged” and “pleased” with the committee’s vote, White House press secretary Karine Jean-Pierre said Friday.

The framework, co-led by House Ways and Means Chair Jason Smith of Missouri and Senate Committee on Finance Chair Ron Wyden, an Oregon Democrat, includes both parties’ priorities to address child poverty and expired Trump-era tax breaks.

After four-and-a-half hours of debate and several attempts by Democrats to revive, at least in part, more generous pandemic-era child tax credit benefits, the panel placed its near-unanimous stamp of approval on the major tax deal.

After casting her vote, Washington state Democrat Suzan DelBene said the legislation “is an imperfect bill in many ways but that is the reality of divided government.”

“It nevertheless includes several provisions that I have long advocated for that would help support workers and families and grow our economy. That is why I voted to advance the package, but there is still more we can do,” she said in a statement.

Details on child tax credit changes

The bill, if eventually enacted into law, would increase the child tax credit incrementally for the taxable years 2023 through 2025, and adjust the credit for inflation.

The amounts would increase from $1,800 in 2023, to $1,900 in 2024 and $2,000 in 2025.

Under current tax law, parents can only receive up to $1,600 back per child.

The bill also aims to restore tax credits for low-income housing construction.

As for reviving expired business tax incentives, the bill would reinstate full expensing for domestic research and development costs and 100% bonus depreciation for equipment purchases, and speed up the timeframe during which companies can deduct certain costs.

Other incentives include tax relief for victims of qualifying wildfires after 2014, and for those who suffered losses as a result of the February 2023 train derailment in East Palestine, Ohio.

The legislation also aims to establish tax incentives that encourage more business between the U.S. and Taiwan.

Smith said Friday the bill is a product of more than a decade of discussion on how “to reform the tax code in a way that supports workers, families, and small businesses.”

“The bill before us today represents bipartisan policies that are proven and effective, common sense fixes to the tax code that will rebuild our communities, support better jobs and wages, and grow our economy. Many members on both sides of this committee are cosponsors of the different policies in this legislation,” Smith said in his opening remarks.

Paid for by ending another tax break

The three-year deal is expected to be entirely paid for by cutting off a COVID-19 tax break for businesses who retained employees during the pandemic.

While businesses originally had until April 15, 2025 to claim the tax credit, the new legislation would end the program on Jan. 31 of this year, essentially stopping the flow of claims that have recently gained extra popularity.

Smith said in his remarks that the program “has become overrun with fraud and ballooned in cost six times larger than (Congressional Budget Office’s) original estimate.”

That change is expected to save the government an estimated $79 billion, according to an analysis by the Committee for a Responsible Federal Budget.

The Business Roundtable, an organization representing American CEOs, has been lobbying for the bill and praised the “strong bipartisan vote” as an “important step toward restoring three pro-growth tax policies essential to America’s competitiveness.”

Florida’s Rep. Vern Buchanan, a business owner, said restoring a business’ ability to fully expense as well as loosening interest deductibility rules is “huge.”

“I can tell you for small businesses, that deduction makes a big difference and (owners) can hang on (to) a little bit more of what they earn, and use that to expand and grow their business,” the Florida Republican said.

Fellow Floridian Greg Steube said he’s been “working tirelessly” for tax relief on disaster payments, with a particular focus on Hurricane Ian, which brought massive and expensive damage to the Sunshine State in 2022.

“Today we can move one step closer to providing real relief,” said Steube, a Republican.

Warnings and opposition

Although the organization praised the bipartisan, bicameral bill structured to offset its own cost, the nonpartisan Committee for a Responsible Federal Budget warned that the policies “would add significantly to the already massive federal debt” if extended beyond their 2025 expiration dates.

If extended, the child tax credit would cost $180 billion, and the business tax incentives $525 billion, through 2033, according to the analysis by the CRFB.

And while most of the panel’s minority members supported the legislation, more than a dozen expressed concern during the bill’s markup that the child tax credit expansion still does not meet the needs of low-income families.

DelBene’s amendment to return the tax credit to full refundability, as it was under temporary COVID-19 changes, was unsuccessful.

Full refundability means the earned income threshold, $2,500, would drop to $0, giving access to the poorest families.

DelBene also proposed returning the tax credit payments to monthly installments, as it was during the pandemic, and raising the amount per child to $3,000, and $3,600 for each kid under age 6.

The amendment was voted down 18-25, among the amendments of several of her colleagues.

After the pandemic-era temporary increase illustrated significant reductions in child poverty, Democrats have been pushing to expand, and specifically make the credit permanent.

Several Republicans disagreed with DelBene’s amendment, wanting instead “to stick to the deal that has been struck,” said Rep. Adrian Smith of Nebraska.

“The amendment would chip away at or destroy what has been a hard-won compromise,” he said.

Rep. Gwen Moore, a Wisconsin Democrat, said the markup was a “missed opportunity” to make changes to the child tax credit. The panel defeated her amendment to increase the percentage at which the credit is earned, to 40%.

The child tax credit phases in at 15% of a household’s income, meaning that lower earners might not achieve the maximum credit amount in one year, depending on wage and hours.

“This is not supposed to be a work program, it’s supposed to recognize the expensive cost of raising kids and wanting them to have the proper development, health, and education,” Moore said.

Moore was one of three no votes, along with Reps. Lloyd Doggett of Texas and Linda Sanchez of California.

The House returns Jan. 29.

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Ashley Murray
Ashley Murray

Ashley Murray covers the nation’s capital as a senior reporter for States Newsroom. Her coverage areas include domestic policy and appropriations.

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