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Tax panel leaders clinch deal on child credit, business breaks

Top tax writers still lack buy-in from all sides and a legislative vehicle

Sen. Ron Wyden, D-Ore., enters the Senate subway after speaking with reporters in the Capitol on Wednesday, Jan. 10.
Sen. Ron Wyden, D-Ore., enters the Senate subway after speaking with reporters in the Capitol on Wednesday, Jan. 10. (Bill Clark/CQ Roll Call)

Senate Finance Chair Ron Wyden and House Ways and Means Chairman Jason Smith unveiled a roughly $78 billion tax deal Tuesday that would revive a trio of business tax credits, expand the child tax credit and boost low-income housing. 

Wyden, D-Ore., and Smith, R-Mo., aim to pass the tax package before Jan. 29 to avoid disruptions to filing season. The two will need to shore up support amid criticism of the deal from the right and left and find a legislative vehicle for the measure, since it appears the tax legislation won’t hitch a ride on the stopgap spending bill unveiled over the weekend.

“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 statement.

The deal’s expansion of the child tax credit would allow low-income families with more than one kid to qualify for more of the credit more quickly. Other changes would include making more of the credit available as a refund — the current $1,600 per child limit would be raised to $1,800 for 2023, and gradually increase to $2,000 in 2025. It would index the total credit, currently capped at $2,000 per child, to inflation starting in 2024.

The deal would also allow families to use the previous year’s income to qualify for the relief, according to a summary of the package, which wasn’t yet introduced as legislative text.

Disaster aid, housing credit

An expansion of the low-income housing tax credit and tax relief for individuals impacted by natural disasters and the East Palestine, Ohio, train derailment were new additions to the package since the tentative outlines of a deal were reported earlier this month. House Ways and Means approved a nearly $5 billion stand-alone disaster relief bill in November.

The package would restore a 12.5 percent cap on low-income housing tax credits in place from 2018 to 2021, allowing states to allocate more of the credit to affordable housing projects. Senate Democrats had pushed Wyden to get housing provisions included in a deal. The expansion would support the construction of more than 200,000 affordable homes, Wyden said.

It would also incorporate legislation to extend tax treaty-like benefits to American companies operating in Taiwan and vice versa. And for the first time since the 1950s, the measure would boost the threshold for businesses to report payments to subcontractors, from $600 to $1,000 initially, and then indexed for inflation.

Smith touted the business provisions included in the package.

“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,” he said in a statement. “This legislation locks in over $600 billion in proven pro-growth, pro-America tax policies with key provisions that support over 21 million jobs. I look forward to working with my colleagues to pass this legislation.”

The package would restore business tax incentives phased out to lower the price tag of the 2017 tax law. The package would allow the businesses to deduct domestic research and development investments all at once, rather than spaced out over five years. Deductions of foreign research and development investments would still be amortized over 15 years. 

The package would also reinstate a more generous cap on interest payments deductions put in place by the 2017 tax law and phased out in 2022. It would extend a provision from the 2017 law allowing businesses to deduct all of their investments in short-term assets, such as machinery and other equipment. The deduction dropped to 80 percent of those purchases last year and will phase out entirely by 2027, absent congressional action.

The deal would also allow small businesses to deduct up to $1.29 million in investments, up from $1 million. 

Tax writers plan to end the pandemic-era employee retention tax credit program early to cover the cost of the deal. They estimated ending the program would offset more than $70 billion of the package’s cost.

The business tax incentives and child credit expansions make up the bulk of the deal’s price tag, coming in at roughly $33 billion each, an aide said.

The package would not raise the $10,000 cap on state and local income tax deductions, which could undermine support among lawmakers from high-tax, high-cost-of-living states, such as California, New York and New Jersey.

One high-profile ‘SALT’ cap critic nonetheless weighed in on the tax deal’s behalf.

In a floor speech Tuesday, Senate Majority Leader Charles E. Schumer endorsed the package, particularly the low-income housing credit expansion which he said was critical to gaining his backing.

“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, D-N.Y., said.

Minority Leader Mitch McConnell, R-Ky., made no mention of the tax deal in his opening floor remarks, and Senate Republicans have typically been quiet about the emerging package.

GOP Finance members huddled to discuss the measure late Tuesday.

The panel’s ranking member, Michael D. Crapo of Idaho, said he’s still working with tax writers on the deal, but wouldn’t say what changes he needs to see to get on board.

“We have not resolved everything yet,” he said. “I hope we are able to get a bill, and I’ve been working on this bill for three years.”

Groups weigh in

The package received a positive response from business and some, but not all, left-of-center policy groups on Tuesday.

Business Roundtable CEO Joshua Bolten, whose group represents the heads of major U.S. corporations, said that reviving the business incentives would boost domestic investment and create jobs.

“All three of these tax policies have a long history of bipartisan support and are critical to strengthening America’s global competitiveness,” Bolten said in a statement.

The Center on Budget and Policy Priorities likewise praised the deal, saying in a report that the expansion of the child tax credit would have a “significant impact” by targeting families who don’t qualify for the full amount. The proposed deal would lift up to 400,000 kids out of poverty, the policy group said. 

“The proposal’s top priority is getting more of the credit to most of the roughly 19 million children who currently get a partial credit or none at all because their families’ incomes are too low,” the group said. “In the first year, more than 80 percent of the roughly 19 million children under 17 in families with low incomes who don’t now get the full credit would benefit — about 16 million children.”

Patriotic Millionaires — a group of wealthy individuals that promotes higher taxes on people like themselves — called the child credit expansion an “undeniable good” that came out of the deal.

But the same doesn’t apply to the business breaks, they said.

“At the same time, I’m disgusted by those who saw the obvious need to extend those benefits as an opportunity to extract tax cuts for corporations, who clearly didn’t need them as they pulled in record profits and artificially pumped up inflation,” Erica Payne, the group’s founder and president, said in a statement. “There was no need for horse trading on the [child credit].”

David Lerman contributed to this report.

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