Lawmakers reach tax treaty, but Congress faces long election odds
Top Democrats and Republicans in Congress on Tuesday released a $78 billion compromise they reached to expand the child tax credit and restore three popular expired tax breaks for businesses, but the package faces a challenging path to passage in an election year to step.
The plan includes $33 billion to partially extend a major expansion of the child tax credit, which was initially boosted by a year as part of the sweeping 2021 pandemic relief law, and another $33 billion to restore a series of expired business tax credits related to research, corporate and capital allowances to be restored. Both would last until 2025.
It would also include an increase in a tax credit to encourage the development of low-income housing, tax relief for disaster victims And tax breaks for Taiwanese workers and companies active in the United States. The package would be financed by reining in the employee tax credit, a pandemic-era program to encourage employers to keep workers on the payroll that has become a hotbed of abuse.
The deal represents a rare bipartisan agreement that includes both chambers, brokered 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 Commission. They have led an intense round of discussions aimed at reaching a compromise and enacting it into law in time for the start of tax filing season this month.
But the package faces steep obstacles in a Congress straining to tackle even the basic work of funding the government.
“Fifteen million children from low-income families will be better off as a result of this plan, and given the current miserable political climate, having this opportunity to pass pro-family policies that will help so many children move forward is a big deal.” helps,” Mr. Wyden said in a joint statement with Mr. Smith on Tuesday. “My goal remains to get this done in time so that families and businesses can benefit from this coming tax filing season, and I will do everything in my power to make that happen.”
Mr. Smith defended what he said would be “more than $600 billion.” in a proven pro-growth, pro-American tax policy with key provisions that support more than 21 million jobs.”
Supporters were optimistic about the plan's chances, noting how unlikely it seemed that a bipartisan tax package would pass.
“It's — I don't want to say it's a legislative miracle, but it almost is,” said Senator Sherrod Brown, Democrat of Ohio and a leading supporter of the child tax credit. “Six months ago there was no chance of the child tax credit.”
Yet major hurdles still remain. Congress remains primarily focused on funding the government before Friday's shutdown deadline, and divided Republicans in the House of Representatives continue to trouble Speaker Mike Johnson of Louisiana.
The deal also faces resistance from many Republicans in the Senate, and Democrats in the House of Representatives have argued that more needs to be done to expand the child tax credit. Mr. Smith and Mr. Wyden's key counterparts on tax writing — Representative Richard E. Neal of Massachusetts, the senior Democrat on the Ways and Means Committee, and Senator Michael D. Crapo of Idaho, the senior Republican on finance committee – in particular did not approve the package.
The effort is a test of whether Congress can pass major legislation during an election year. In addition to funding the government, lawmakers have largely focused on the politically contentious negotiations over a new immigration policy in exchange for additional military aid to Ukraine.
A new bill to expand the child tax credit would be a rare piece of substantive legislation and a political victory for President Biden and Democrats, just as Republicans could also promote tax breaks for corporations and point to the deal as evidence that they are in be able to rule. despite a year of remarkable chaos and lack of productivity.
“As we get into an election cycle, I think it becomes significantly more difficult,” Neal said last week, also noting the narrow margins of each party in each chamber. “But I think a lot of us can figure out how to get there.”
The extended child tax credit child poverty rates almost halved in 2021 and is estimated to cost $105.1 billion. It expired in 2022, reducing the amount families could claim per child to the level set by former President Donald J. Trump's 2017 tax cuts and limiting how much of the credit lower-income families could receive.
The deal announced Tuesday would gradually increase the limit on the amount the lowest-income families can receive, to match the amount for higher-income families. It would also make the credit more accessible to families with multiple children, allow parents to use the previous year's income to claim a larger credit and automatically adjust for inflation starting in the current tax year.
Several Democrats in the House of Representatives, including Mr. Neal, have pushed in the past week for more attention to the child tax credit — including restoring monthly checks to recipients instead of the current annual payments — and have questioned whether the deal really achieves equality offered for families and businesses, as advertised.
“Millions of children would be left in avoidable poverty as a result of a policy choice, while giant corporations that don't pay taxes get a huge tax break,” Rep. Rosa DeLauro of Connecticut, the top Democrat on the Appropriations Committee, said in a speech. statement last week. “It's time to get started on policies that will actually improve their lives, not watered-down policies to make a deal.”
Senate Republicans have expressed skepticism that a deal could become law, highlighting outstanding issues including identifying a legislative vehicle through which the package could become law. House Republicans have struggled to advance many smaller bills over the past year, emboldening a restive right wing to defy their leaders and block legislation to register their grievances.
“I think the chances of getting this done, at least through the January window, are virtually nil,” Senator Charles E. Grassley, Republican of Iowa, said Thursday. He noted that Republican leaders in the House of Representatives would not want to tie the package to spending bills that already face dissent from the far right.
Sen. John Thune of South Dakota, the No. 2 Republican, also warned last week that any strengthening of the child tax credit would have to be “reasonable” and accompanied by a “good balance” of tax breaks for businesses.
“Those are really difficult issues,” he said of expanding the child tax credit. “You're not going to get Republicans to agree with a lot of that.”
The plan includes Republican-authored bills to exempt from taxes any compensation received for wildfire disasters or the train derailment in East Palestine, Ohio, and to provide treaty-like tax breaks to Taiwanese individuals and companies.
The political dynamics of an election year have clouded the package's prospects.
Mr. Brown of Ohio, for example, faces a tough reelection race in November, with Republicans seeing his seat as an excellent opportunity to shift control of the Senate in their favor. Increasing the child tax credit would be a legislative and political victory for Mr. Brown, who has made it one of his signature issues.
Still, some lawmakers said the bipartisan deal suggested that electoral politics, at least in this case, could push members of Congress to do something.
“What you see here in terms of politics is that both sides – instead of failing and then pointing fingers at the other side and blaming the other side for the failure – I think both sides are up to the have come to the conclusion that the American people prefer to see progress, and they prefer to see the two parties working together,” said Senator Michael Bennet, Democrat of Colorado, last week. “I don't know whether there is a political lens behind this. But I suspect this is a reaction to the fact that people know that people at home are tired of the chaos.”
Alan Rappeport reporting contributed.