Senior lawmakers announced an agreement for a $78 billion tax package on Tuesday morning in a rare bipartisan, bicameral feat that nevertheless faced long odds to become law as Congress struggles to fulfill basic responsibilities like funding the government.
The deal would expand the Child Tax Credit while reviving and extending a trio of major business tax deductions, among other measures. The leaders of Congress’s two top tax-writing committees, Senate Finance Chair Ron Wyden, D-Ore. and House Ways and Means Chair Jason Smith, R-Mo., have labored for months to broker the compromise.
“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, adding he’d be “pulling out all the stops” to push the deal through Congress.
Wyden’s House GOP counterpart touted the benefits for businesses. “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,” Smith said in a statement.
The agreement drew a robust endorsement from Senate Majority Leader Chuck Schumer later on Tuesday. He said in a floor speech that the tax deal “will significantly improve the lives of millions of working families and help mainstream businesses grow in today’s economy.”
The deal would revamp the current Child Tax Credit by adjusting it for inflation and increasing its generosity for the poorest families, though it wouldn’t resemble the pandemic-era program that temporarily issued checks to families every month. By 2025 it would increase the maximum value to $2,100 and let families take the full credit as a cash payment if they have no tax liability.
Currently, low-income parents can only receive up to $1,700 as cash for the 2024 tax filing season. Crucially, it would also include a faster phase-in of the credit for households with multiple children. The left-leaning Center on Budget and Policy Priorities estimated the combined changes would bring 400,000 kids out of poverty in its first year.
For businesses, the agreement would extend rules allowing companies deduct the cost of capital expenses immediately, instead of spreading them over years; establish a larger interest deduction; and restore the ability for businesses to immediately write off domestic research and development expenses. It also raises the limit on how much businesses can pay independent contractors before being required to report it to the IRS to $1000 from $600 today, and sets it to rise with inflation.
Kyle Pomerleau, a tax expert at the right-leaning American Enterprise Institute, told Semafor the business benefits “would increase cash flow for companies, but it would change nothing about the economy in the long run because it’s all temporary” and therefore wouldn’t influence investment decisions.
The deal also boosts the Low Income Housing Tax credit to encourage the development of more affordable housing, establishes relief for Taiwanese businesses and individuals operating in the US from double taxation, and provides tax relief to disaster victims.
The deal is financed by ending the Employee Retention Tax Credit program over a year before its current 2025 expiration date. The pandemic-era measure was aimed at saving jobs as businesses faced shutdowns, but has become a costly magnet for scams and fraud.
The Wyden-Smith agreement is intended to be a three-year deal running through the end of 2025, when much of the GOP’s signature tax law is scheduled to expire and setting up a multi-trillion dollar fight over the tax code.
Notably, Sen. Mike Crapo, R-Idaho, the ranking Republican on the Senate Finance panel; and Rep. Richard Neal, D-Mass., the ranking Democrat on the Ways and Means Committee, did not sign off on the agreement. Neither did the White House, which offered a measured statement of support.
“We appreciate Chairman Wyden and Chairman Smith’s work toward increasing the Child Tax Credit for millions of families and supporting hundreds of thousands of additional affordable homes, and look forward to reviewing the full details of their agreement,” White House spokesperson Michael Kikukawa told Semafor, adding they remain committed to restoring the covid-era Child Tax Credit.
Neal’s office declined to comment. Crapo told reporters on Tuesday evening that he’s seeking a markup of the tax deal, thus opening a bill to debate and amendments from GOP senators on the Finance Committee.
Sen. Todd Young, R-Ind. has been a chief GOP proponent of restoring the R&D tax incentive. But he indicated parts of the agreement including the Child Tax Credit and corporate deductions would need to be adjusted further to win votes.
“It’s really close,” Young told reporters after leaving a tax deal meeting between GOP members of the Senate Finance panel on Tuesday night. “I think that negotiators have done a good job. It appears there’s some more work to be done.”
The ongoing legislative maneuvering underscores the hurdles standing between the framework being forged into legislation that reaches President Biden’s desk. Wyden has said Jan. 29 — the start of the 2024 tax filing season — represented a deadline to get the provisions hammered into law. Sen. John Cornyn, R-Tx. called it an “artificial” deadline.
At least one key Democrat, Rep. Rosa DeLauro, D-Conn said she’d be opposed to an agreement that skewed most of its tax benefits to corporate America. But it did attract support from other Democratic corners.
Sen. Sherrod Brown, an Ohio Democrat dealing with a tough re-election bid, called it a bipartisan “win-win.” Expanding the child tax credit has long been one of his own signature issues.
“Six months ago, no one thought that we could work across party lines to deliver a deal that cuts taxes for working families and helps grow the middle class,” Brown said in a statement on Tuesday morning. “I look forward to working with my colleagues in both parties to quickly pass this deal into law.”
It was always difficult to believe Wyden-Smith would speed through both chambers of Congress by the end of the month, in particular since it didn’t have the imprimatur of GOP senators. Rohit Kumar, a former McConnell aide, compared it to the dynamic between older siblings and younger siblings.
“Senators are just institutionally a little less wired to accept something just because the House did it,” Kumar, now PwC’s Washington National Tax Services Co-Leader, told me.
I’m still hearing skepticism among GOP aides in both chambers about a tax agreement crossing the finish line, given the enormous lift it has become for Congress to simply cross off items from its to-do list like funding the government. The lingering threat to House Speaker Johnson’s job from House hardliners doesn’t help matters, since he can ill-afford to tick off conservatives if they line up against the agreement.