Congress Makes Progress on Bipartisan Agreement to Expand Child Tax Credit

A plan to temporarily expand the child tax credit and bring back tax breaks for businesses garnered strong bipartisan support in a committee vote on Friday. This is a rare display of compromise in a divided Congress as the country enters a contentious election year.

The GOP-led U.S. House Committee on Ways and Means voted 40-3 to pass the Tax Relief for American Families and Workers Act, also known as H.R. 7024. The bill will now proceed to the House for a full floor vote.

The Biden administration hailed the committee’s vote as encouraging and pleasing, according to White House press secretary Karine Jean-Pierre.

The bipartisan framework, co-led by House Ways and Means Chair Jason Smith and Senate Committee on Finance Chair Ron Wyden, aims to address child poverty and reinstate expired tax breaks from the Trump era.

After four-and-a-half hours of debate, the committee overwhelmingly approved the major tax deal, despite Democrats’ attempts to revive more generous pandemic-era child tax credit benefits.

Washington state Democrat Suzan DelBene acknowledged that the legislation is imperfect but stated that it contains provisions she has advocated for. DelBene voted in favor of advancing the package but believes there is still more that can be done.

Details on child tax credit changes

The bill, if enacted into law, will gradually increase the child tax credit for the years 2023 through 2025, and adjust it for inflation.

The credit amount will rise from $1,800 in 2023 to $1,900 in 2024 and $2,000 in 2025.

Currently, parents can only receive a maximum of $1,600 per child in tax credit.

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

Regarding the revival of expired business tax incentives, the bill intends to reinstate full expensing for domestic research and development costs, 100% bonus depreciation for equipment purchases, and expedite the timeline for certain cost deductions.

Other incentives include tax relief for victims of qualifying wildfires after 2014 and individuals who suffered losses due to the February 2023 train derailment in East Palestine, Ohio.

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

Chairman Smith stated that the bill is the culmination of over a decade of discussions on tax code reform that supports workers, families, and small businesses.

Smith emphasizes that the bill represents bipartisan policies that are effective and sensible fixes to the tax code, which will help rebuild communities, promote better jobs and wages, and spur economic growth. Many members on both sides of the committee are co-sponsors of the various policies in this legislation, he added.

Paid for by ending another tax break

The three-year deal is expected to be entirely financed by eliminating a COVID-19 tax break for businesses that retained employees during the pandemic.

Originally, businesses had until April 15, 2025, to claim the tax credit. However, the new legislation would terminate the program on Jan. 31 of this year, effectively stopping any further claims.

Chairman Smith noted that the program has become riddled with fraud and ballooned in cost, exceeding the Congressional Budget Office’s original estimate by a factor of six.

By making this change, the government is projected to save an estimated $79 billion, as analyzed by the Committee for a Responsible Federal Budget.

The Business Roundtable, an organization representing American CEOs, has been lobbying for the bill and commended the strong bipartisan vote as a crucial step towards reinstating three tax policies essential to America’s competitiveness.

Florida’s Rep. Vern Buchanan, who is a business owner, believes that restoring a business’s ability to fully expense and relaxing interest deductibility rules is significant.

He stated, “I can tell you that for small businesses, that deduction makes a big difference. Business owners can keep a little more of what they earn and use it to expand and grow their businesses.”

Another Florida representative, Greg Steube, expressed his tireless efforts to secure tax relief for disaster payments, with a particular focus on Hurricane Ian, which caused massive and costly damage to the Sunshine State in 2022.

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

Warnings and opposition

While the bipartisan, bicameral bill has been praised for its offsetting cost structure, the nonpartisan Committee for a Responsible Federal Budget cautioned that the policies would significantly contribute to the already massive federal debt if extended beyond 2025.

The analysis conducted by the Committee for a Responsible Federal Budget revealed that extending the child tax credit and the business tax incentives would cost $180 billion and $525 billion, respectively, by 2033.

Although most of the panel’s minority members supported the legislation, over a dozen members expressed concerns during the bill’s markup that the expansion of the child tax credit still falls short of meeting the needs of low-income families.

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

Full refundability means that the earned income threshold, currently set at $2,500, would drop to $0, allowing the poorest families to benefit from the credit.

DelBene also proposed returning the tax credit payments to monthly installments, as was done during the pandemic, and increasing the amount to $3,000 per child and $3,600 for children under the age of 6.

Her proposed amendment was voted down 18-25, alongside several other amendments from her colleagues.

After the temporary increase in the child tax credit during the pandemic yielded significant reductions in child poverty, Democrats have been pushing for its expansion and permanent establishment.

Several Republicans opposed DelBene’s amendment, preferring to stick to the agreed-upon deal. Representative Adrian Smith of Nebraska stated that the amendment would undermine the hard-won compromise.

Representative Gwen Moore, a Wisconsin Democrat, believes that the markup was a missed opportunity to make improvements to the child tax credit. The panel rejected her amendment, which aimed to increase the percentage at which the credit is earned to 40%.

Currently, the child tax credit gradually increases from 15% based on a household’s income. This means that lower earners may not receive the maximum credit amount in a single year, depending on their wages and hours worked.

Moore argued, “This is not supposed to be a work program; it’s supposed to recognize the high cost of raising children and support their proper development, health, and education.”

Moore was among the three representatives who voted against the bill, along with Representatives Lloyd Doggett of Texas and Linda Sanchez of California.

The House will reconvene on Jan. 29.

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