Landmark Bipartisan Tax Accord Unveiled: Child Tax Credit Set to Expand as Business Tax Breaks Extend

In a significant breakthrough, Senator Ron Wyden (D-Ore.), chair of the Senate finance panel, and his House counterpart, Representative Jason Smith (R-Mo.), have successfully negotiated a groundbreaking bipartisan tax framework. This historic agreement, announced by top lawmakers on the Senate and House tax writing committees, focuses on a temporary expansion of the child tax credit coupled with a series of extended business tax breaks.

The framework, which still awaits approval from both chambers of Congress, comes at a crucial time, with the 2023 tax filing season kicking off on January 29. Senator Wyden and Representative Smith, as chairs of the Senate Finance Committee and House Ways and Means Committee respectively, have been engaged in discussions for months to craft this comprehensive package. The goal is to swiftly move it forward as a standalone bill or potentially attach it to a stopgap spending bill.

Estimates from the independent Joint Committee on Taxation suggest that the plan could incur costs of approximately $70-80 billion. However, aides anticipate offsetting these expenses by revamping a COVID relief tax credit, generating equivalent revenue for the government.

Dubbed the 'Tax Relief for American Families and Workers Act of 2024,' the proposed legislation entails a three-year expansion of the child tax credit. Families with multiple children stand to benefit, as the bill raises the cap for the refundable child tax credit from the current $1,600 to $1,800 in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025. Furthermore, the bill introduces adjustments for inflation starting in 2024.

Senator Wyden emphasized the positive impact of the plan, stating, "Fifteen million kids from low-income families will be better off as a result of this plan." He highlighted the significance of passing pro-family policy in the current political climate.

The U.S. Census Bureau's findings on the child tax credit included in the 2021 COVID relief bill, the American Rescue Plan, underscore its role in significantly reducing child poverty. The proposed legislation draws inspiration from that bill, aiming to emulate its success by making the child tax credit fully refundable.

While the negotiation was led by two prominent tax writers in Congress, the path to securing sufficient support for the legislation remains uncertain. Nevertheless, the Tax Relief for American Families and Workers Act of 2024 marks a pivotal moment in bipartisan efforts to address critical issues related to child welfare and business tax incentives.

As details of the bipartisan tax deal emerged last week, some House Democrats expressed reservations about the scope of the agreement. Prior to the announcement, concerns were voiced, particularly regarding the child tax credit. Connecticut Democratic Representative Rosa DeLauro expressed her apprehensions, stating that the deal seemed to lean too much in favor of corporations, potentially leaving 'millions of kids behind.'

House Democratic leaders, including ranking member Rep. Richard Neal of Massachusetts, are engaged in discussions about the deal. Meanwhile, Senate Majority Leader Chuck Schumer offered his support for the bipartisan tax framework during a Tuesday afternoon speech on the Senate floor. Schumer highlighted the positive aspects of the deal, emphasizing its contributions to expanding the child tax credit, addressing the affordable housing crisis, and enhancing the competitiveness of U.S. businesses against the Chinese Communist Party.

Schumer acknowledged the necessity of bipartisan support to advance legislation, expressing hope that Republican Senate colleagues would collaborate in the ongoing process. On the Republican side, Sen. Mike Crapo, the top Republican on the finance committee, described the bill as a 'thoughtful starting point' but did not endorse the plan. Recognizing the short timeline with the tax filing season approaching, Crapo committed to working with Senate colleagues to build broad bipartisan support for a tax package benefiting working families and businesses.

Despite concerns, several Senate Democrats echoed Schumer's endorsement, applauding the progress achieved in the deal. Colorado Democratic Sen. Michael Bennet, while expressing disappointment that the proposal didn't mirror the American Family Act, acknowledged the substantial impact on children and families. He noted that 80% of children currently excluded from the full Child Tax Credit would benefit from the new deal.

House Ways and Means Chairman Jason Smith, a key player in the negotiations and a Republican from Missouri, highlighted the positive provisions for both families and businesses in the tax agreement. As discussions unfold, the fate of the bipartisan tax deal remains uncertain, with differing opinions among lawmakers on its overall impact and priorities.

The bipartisan tax agreement encompasses a range of business tax credits aimed at fostering economic growth and job creation. Notable provisions include the immediate deduction of research and development costs for corporations, as opposed to spreading the deduction over five years. Additionally, the bill allows a 100% expense write-off for investments in equipment and enhances the write-off capabilities for small businesses. House Ways and Means Chairman Jason Smith, a key architect of the deal, emphasized the broad benefits, stating, '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. We even provide disaster relief and cut red tape for small businesses, while ending a COVID-era program that's costing taxpayers billions in fraud.'

The legislation also addresses critical issues beyond business incentives. It seeks to bolster the supply of affordable housing by reinstating a credit for low-income housing. Moreover, the bill increases penalties for non-compliance with an employee retention tax credit established during the pandemic. Recognizing the absence of a tax treaty with Taiwan, the legislation includes a provision authorizing the president to engage in consultations with Congress and negotiate one. While most of the business tax provisions have a three-year expiration, those related to small business expensing and Taiwan are designed to be permanent.

Business Roundtable CEO Joshua Bolten expressed support for the bill, highlighting its potential to stimulate domestic investment, foster innovation, and create jobs. However, challenges remain, as lawmakers from both parties advocate for the restoration of the tax deduction for state and local income taxes. The 2017 tax law capped this deduction at $10,000, and its expiration is scheduled for 2025. Disagreement persists on whether to eliminate the cap and reinstate the deduction, with no consensus emerging as part of the new tax package.

In conclusion, the bipartisan tax agreement unveiled by key lawmakers signifies a multifaceted effort to address crucial aspects of economic development, job creation, and social welfare. The comprehensive legislation not only introduces business-friendly tax credits, such as immediate deductions for research and development costs and enhanced expensing for small businesses, but also tackles broader issues, including affordable housing and pandemic-related tax measures.

House Ways and Means Chairman Jason Smith underscores the far-reaching benefits for American families, emphasizing tax relief, support for Main Street businesses, enhanced competitiveness with China, and job creation. The bill's provisions also extend to disaster relief and the streamlining of processes for small businesses, aligning with the evolving economic landscape.

While the business tax incentives are set to expire in three years, certain aspects, such as small business expensing and the Taiwan provision, are slated to be permanent, signaling a long-term commitment to specific policy objectives. Business Roundtable CEO Joshua Bolten's endorsement reinforces the potential for the bill to stimulate domestic investment, encourage innovation, and contribute to job growth.

Nevertheless, the legislative landscape faces challenges, notably in reconciling bipartisan support for the tax deduction restoration for state and local income taxes. The debate over eliminating the cap and reinstating the deduction, set to expire in 2025, remains unresolved within the framework of the new tax package.

As lawmakers navigate these complexities, the bipartisan tax agreement stands as a significant step toward addressing diverse economic and social priorities, with its impact poised to shape the trajectory of taxation policies and their ramifications for American families and businesses.