Congress nears deal to partially restore Biden’s expanded child tax credit
The emerging three-year, roughly $80 billion deal with Republicans would ensure that more of the poorest families — who are traditionally excluded from the credit because they don’t owe any income tax — would qualify for at least some federal assistance. It would allow the lowest-income families to claim the credit for each child, the people said, when the current credit only allows those at the lowest end of the income spectrum to receive payments for one child. And it would permit some recipients to submit the previous year’s tax return to the IRS to receive a larger credit.
The deal would also affect some provisions from former president Donald Trump’s 2017 tax cut that benefit corporate America, including one that incentivizes business investments.
The deal is being brokered by the heads of Congress’s key tax-writing committees: Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Chairman Jason T. Smith (R-Mo.). Some provisions remain in flux. And its path to passage is uncertain, because other lawmakers could mount significant opposition to the agreement.
“My agenda is pretty straightforward,” Wyden said Tuesday. “I want to get the biggest tax cut for families, for working families, and the biggest relief under the child tax cut that’s possible and, and help as many families as we can.”
Added Smith on Tuesday: “Things are progressing really, really well.”
Sen. Mike Crapo (Idaho), the top Republican on the Finance Committee, said Wednesday that he was “hopeful” that negotiators were nearing a final agreement.
“I’m very committed to trying to get a resolution to the tax policies,” he said.
As part of Biden’s 2021 stimulus package, known as the American Rescue Plan, Democrats approved an expansion of the existing child tax credit. That law increased the amount the credit offered and extended eligibility for it to millions of poor families who did not previously earn enough to quality. But after pulling millions of children out of poverty, the provision expired amid resistance to extending it from GOP lawmakers and Sen. Joe Manchin III (D-W.Va.).
The expanded child tax credit kept 3 million children out of poverty, according to research conducted by Columbia University’s Center on Poverty and Social Policy. The poverty rate for children during the final month of expanded child tax credit payments under the American Rescue Plan Act was 12.1 percent, the center reported. The month after it expired, the child poverty rate jumped to 17 percent. It stood at 17.8 percent in November, the last month for which data is available.
It is unclear exactly how much money families could expect to see from the proposed expansion. However, it would at least partially change the structure of the benefit to reach more families who are currently cut off because their earned incomes are too low to owe federal taxes, meaning they can’t claim the credit, according to the two people, who spoke on the condition of anonymity to discuss private deliberations.
The plan would also be paid for, at least in part, by clawing back funding from a covid-aid tax program aimed at encouraging businesses to retain their workers, the people said. That program, the employee retention tax credit, has faced significant criticism for enabling potential fraud and as no longer necessary amid very low unemployment.
“Though far smaller than the American Rescue Plan expansion, an agreement that includes these improvements would be an important step forward and reduce both the extent and severity of child poverty,” Chuck Marr, vice president for federal tax policy at the Center on Budget and Policy Priorities, said of the prospective deal. “It would help a substantial majority of the 19 million children whose families currently get less than the full credit because their earnings are too low.”
Negotiators have been eyeing Jan. 29 to pass the legislation so it can be implemented at the start of tax-filing season for this year. Treasury Department and Internal Revenue Service officials say they have been following the negotiations to prepare to have the tax system ready if Congress approves the measure.
“We are no stranger to late-breaking tax packages that imminently impact the upcoming filing season,” IRS Commissioner Daniel Werfel told The Washington Post on Tuesday. “Once we have the final details of any such package, we will roll up our sleeves and do what’s necessary to make it work. And so we are standing by, as we do every December and January, to see if there are any late-breaking changes.”
The business provisions all stem from Trump’s 2017 tax legislation. Under the emerging deal, Congress would agree to make it easier for firms to claim tax deductions on interest expenses, research and development expenses, and investments in equipment. The 2017 tax law gradually tightened the limits on these claims to keep the legislation’s overall hit to the budget down, since it already cost more than $2 trillion and centered on a significant tax cut for corporations.
Some conservatives argue that it’s important for Congress to make these kinds of investments more attractive for businesses, because doing so will translate into long-term benefits for the economy.
“You want the cost of capital to be low — that encourages investment, and we believe if you invest more your workers will be more productive and earn higher wages,” said Donald Schneider, who served as a top Republican aide on the House Ways and Means Committee. “That’s exactly what the tax code is supposed to do — it’s a critical pro-growth position.”
But some liberals have balked at making these tax provisions more generous, noting that corporations already benefited from the 2017 law slashing the tax rate they pay from 35 to 21 percent. Some tax experts worry that Democrats may be on the verge of allowing Republicans to have successfully disguised the true cost of their original tax bill.
“The proposals lawmakers are talking about now would undo the cost-contained provisions Republicans put in their own tax law,” said Steve Wamhoff, director of federal tax policy for the Institute on Taxation and Economic Policy, a left-leaning think tank.
Leigh Ann Caldwell and Liz Goodwin contributed to this report.
