The tax bill is moving forward, but electoral politics threaten its chances

The House of Representatives is expected Wednesday to give broad approval to a $78 billion bill that would expand the child tax credit and restore a range of corporate tax breaks, a rare achievement in an election year for a Congress that has been scrambling to pass legislation to establish.

But the measure still faces a difficult path to implementation amid political divisions over who should benefit most from it. The effort, which faces resistance from Senate Republicans and some House members in both parties, is a test of whether a divided Congress with painfully thin margins can withstand the dysfunction of the Republican-led House, the electoral can put politics aside and deliver legislation that would deliver victories for both parties.

“The Tax Relief for American Families and Workers Act is important bipartisan legislation to reinvigorate conservative, growth-oriented tax reform,” Chairman Mike Johnson said in a statement Wednesday. “This bottom-up process is a great example of how Congress should legislate.”

The package would expand the child tax credit — albeit a version that has been significantly scaled back from pandemic-era levels — and restore a range of tax breaks for businesses tied to research and development and capital expenditures. Both would last until 2025. It would also strengthen the tax credit for low-income housing and extend tax benefits to disaster victims and Taiwanese companies and individuals.

The plan would be funded by curbing the employee retention tax credit, a pandemic-era measure intended to encourage employers to keep workers on the payroll, which has become a magnet for fraud.

Lawmakers in both parties see it as a policy victory and a way to show voters they can actually achieve something despite the chaos and unrest that has come to define the Republican-led House of Representatives.

“The majority of the country really wants us to do things in a bipartisan way,” Rep. Greg Murphy, Republican of North Carolina, said in an interview. “We've seen a lot of stalemates because some people actually want to say no to everything. And I think we need to move forward and actually show people that we can govern.”

But in a sign of the political hurdles complicating the bill's path, Mr Johnson is bringing it up on Wednesday through special fast-track procedures that require a two-thirds majority to pass. This maneuver allows him to bypass all Republicans who might otherwise have blocked the bill due to their policies and political concerns.

Senate Republicans have also tried to pump the brakes, another indication of the political hurdles the package faces. The bill would be a victory for President Biden and Democrats who have made expanding the child tax credit a signature issue, including Ohio Sen. Sherrod Brown, who is up for re-election this year and is a top target for Republicans in November.

And a group of lawmakers from New York and other blue states with high tax rates are angry that the measure ignores an increase they have sought in the cap on state and local tax deductions, known as SALT, that would benefit high earners . Republicans in New York expressed their anger on Tuesday by briefly blocking a procedural measure in protest.

“The point, as has been made several times in this Congress, is that there is strength in numbers,” said Rep. Mike Lawler, who joined Reps. Anthony D'Esposito, Nick LaLota and Andrew Garbarino in passing the measure . change their voice once their point is made. “But for us who delivered the majority, this is the issue that matters.”

Mr. Johnson allayed their concerns after a long night of meetings Tuesday by committing to moving forward on SALT, according to a person familiar with the discussions who described them on condition of anonymity. Another person, who also described the discussions on condition of anonymity, said the expectation was that the speaker would move one measure that would double the limit on the SALT deduction for married couples.

The package discussed Wednesday was crafted by the top two tax writers in Congress: Representative Jason Smith, Republican of Missouri and the chairman of the Ways and Means Committee, and Senator Ron Wyden, Democrat of Oregon and the chairman of the Finance Committee. It has the support of the White House, key leaders in both parties on Capitol Hill and a variety of rank-and-file members. It gained momentum after the Ways and Means Committee approved it on a largely bipartisan basis in January.

Advocates point to that vote, and how unlikely it seemed that a tax treaty would materialize, as a good sign for the prospects.

“About 90 days ago there was, I think, a general assessment that the cause of passing a bipartisan tax bill lacked any momentum,” Mr. Wyden said last week. “I mean, that just wasn't possible.”

Republican advocates argue that the tax breaks for businesses are worth embracing, and have also viewed the child tax credit as a conservative victory.

“The child tax credit reforms in this bill are family-friendly policies that preserve the child tax credit structure of Trump-era GOP tax reform,” Mr. Smith said in a statement. “The child tax credit provisions in this bill will help families crushed by inflation, eliminate the penalty for families with multiple children, and maintain work requirements.”

And the bill's supporters hope that a strong bipartisan vote from the House of Representatives will pressure Senate Republicans to drop their opposition.

“If it really gets a lot of votes,” Mr. Wyden said, “this won't be a traditional D and R political debate. People will say, 'We really need that money.' It will make a big difference.”

The legislation would make the $2,000 per child credit more accessible to families with multiple children and gradually increase the limit on how much lower-income families can claim to match the amount for higher-income families. It would also automatically adjust the credit for inflation and allow parents to use the previous year's income if it means they could receive a larger credit.

Right-wing Republicans have denounced the expansion, arguing it would discourage work. They have also objected to allowing undocumented immigrants and U.S.-born children to receive the credit they qualify for under current law.

“I'm not going to support anything that expands the child tax credit, vastly expanding the welfare state,” said Rep. Bob Good, Republican of Virginia and chairman of the House Freedom Caucus. “And I'm not going to support a child tax credit that goes to illegals. I think this encourages this illegal invasion, and we must stand united against it as the Republican Party.”

Progressive Democrats, on the other hand, have argued that the bill does not sufficiently expand the tax credit and disproportionately benefits corporations. It lags far behind the pandemic-era version of the child tax credit, which deposited up to $3,600 per child into families' bank accounts and helped lift millions of children out of poverty.

“The tax deal fails on the equity front,” said Rep. Rosa DeLauro of Connecticut, the top Democrat on the Appropriations Committee said in a statement. “At a time when a majority of American voters believe taxes on big corporations should be increased, there is no reason why we should give corporations a tax cut while only giving families dollars.”