WASHINGTON — A plan to temporarily expand the child tax credit and restore tax breaks for businesses won an overwhelming bipartisan committee vote Friday, a sporadic moment of compromise in a divided Congress heading into a heated election year.
Tax Policy Makers on the Republican-led U.S. House of Representatives Ways and Means Committee voted 40-3 send the Tax Relief for American Families and Workers Act or HR number 7024to the House for a vote by the full chamber.
The Biden administration is “pleased” and “gratified” by the commission’s vote, White House press secretary Karine Jean-Pierre said Friday.
The framework, co-chaired by House Finance Committee Chairman Jason Smith of Missouri and Senate Finance Committee Chairman Ron Wyden, an Oregon Democrat, includes bipartisan priorities such as combating child poverty and expiring Trump-era tax credits.
After four and a half hours of debate and several attempts by Democrats to restore, at least in part, the more generous child tax credits enacted during the pandemic, the committee nearly unanimously approved a major tax deal.
After casting her vote, Washington state Democrat Suzan DelBene said the bill “is imperfect in many ways, but that is the reality of divided government.”
“But it does contain several provisions that I have long advocated for that would help support workers and families and grow our economy. That’s why I voted in favor of the package, but there is still more we can do,” she said in a statement.
Details of changes to child tax relief
If the bill ultimately passes, the child tax credit would gradually augment over the 2023-2025 tax years and would take inflation into account.
This amount will augment from $1,800 in 2023 to $1,900 in 2024 and $2,000 in 2025.
Under current tax law, parents can receive a refund of up to $1,600 per child.
The bill also aims to restore housing tax breaks for low-income people.
In terms of restoring expired corporate tax breaks, the bill will restore full deduction of domestic R&D costs and 100% depreciation bonus for equipment purchases, and shorten the period during which companies can deduct certain costs.
Other incentives include tax credits for victims of qualifying wildfires after 2014 and for people who suffered losses resulting from the February 2023 train derailment in East Palestine, Ohio.
The legislation also aims to introduce tax incentives that will encourage increased economic activity between the U.S. and Taiwan.
Smith said Friday that the bill is the result of more than a decade of discussions about how to “reform the tax code in a way that supports workers, families and small businesses.”
“Today’s bill presents 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 co-sponsors of various policies in this legislation,” Smith said in his opening remarks.
Paid by ending another tax break
The three-year deal is expected to be funded entirely by eliminating a COVID-19 tax break for companies that retained employees during the pandemic.
While businesses originally had until April 15, 2025, to apply for the tax break, the fresh rules will end the program on January 31 of this year, essentially halting the flow of applications that have recently gained popularity.
Smith said in his speech that the program “has been overwhelmed by fraud and its costs have increased six times over the original (Congressional Budget Office) estimates.”
According to an analysis by the Committee for a Responsible Federal Budget, this change is expected to save the government about $79 billion.
The Business Roundtable, an organization representing U.S. CEOs, lobbied for the bill and praised its “strong bipartisan support” as “an important step toward restoring three pro-growth tax policies that are essential to America’s competitiveness.”
Florida Rep. Vern Buchanan, a business owner, said restoring full expense accounting to businesses and loosening interest deductibility rules is “huge.”
“I can tell you that for small businesses, this deduction makes a big difference and (owners) can keep a little bit more of what they earn and use it to expand and grow their business,” the Florida Republican said.
Florida resident Greg Steube said he is “working nonstop” on tax breaks for disaster payments, with a particular focus on Hurricane Ian, which caused massive and costly damage in the Sunshine State in 2022.
“Today we can take a step forward in providing real relief,” said Steube, a Republican.
Warnings and objections
While the organization praised the bipartisan, bicameral bill that was structured to cover its own costs, the nonpartisan Committee for a Responsible Federal Budget warned that the policy would “significantly increase the already massive federal debt” if extended beyond its 2025 expiration date.
If extended, the child tax credit would cost $180 billion and business tax incentives $525 billion by 2033, according to a CRFB analysis.
While most minority committee members supported the bill, more than a dozen expressed concerns during the bill’s discussion that expanding the child tax credit still fails to meet the needs of low-income families.
DelBene’s amendment to restore full refundability of the tax credit, as was the case under momentary changes related to COVID-19, failed.
The full refund means the earned income threshold will drop from $2,500 to $0, making benefits available to the poorest families.
DelBene also proposed returning the tax credit to monthly installments, as it has been during the pandemic, and increasing the amount per child to $3,000 and for each child under age 6 to $3,600.
The amendment was rejected by 18 votes to 25, as were the amendments by several of her colleagues.
After a momentary spike due to the pandemic illustrated Democrats are pushing to expand the program to achieve significant reductions in child poverty, specifically make credit eternal.
Several Republicans disagreed with DelBene’s amendment, wanting instead to “stick to the deal we made,” said Rep. Adrian Smith of Nebraska.
“This amendment will undermine or destroy a hard-fought compromise,” he said.
Representative Gwen Moore, a Democrat from Wisconsin, said the markup was a “missed opportunity” to make changes to the child tax credit. The panel rejected her amendment to augment the percentage on which the credit is calculated to 40%.
Child Tax Credit is awarded on a phased basis, starting at 15% of household income, meaning those on lower incomes may not reach the maximum credit amount in a year, depending on their salary and hours.
“This is not meant to be a jobs program, it is meant to raise awareness of the high cost of raising children and ensuring they have adequate 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 Chamber will meet again on January 29.
