According to conventional wisdom, policymaking generally slows down during presidential election years. With one eye on the ballot box, federal lawmakers are eager to spend more time kissing babies and marching in parades back home and less time legislating on Capitol Hill.
This election year may defy convention. In the last two weeks, congressional leaders have not only agreed to a plan to avert a government shutdown, yesterday they announced a bipartisan deal that would renew a package of tax cuts for families and businesses.
The deal seemed almost impossible just a few months ago. Indeed, regarding yesterday’s announcement, Senate Banking Committee Chairman Sherrod Brown (D-Ohio) told The New York Times, “I don’t want to say a legislative miracle, but it almost is.”
Let’s take a look at this agreement, what it will mean for U.S. taxpayers, and how likely it is to make it to President Joe Biden’s desk for his signature.
What’s In The Bipartisan Tax Deal?
The agreement, negotiated primarily by Congress’s two top tax writers, Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.), includes something for everyone.
First, the outline calls for extending and enhancing a major expansion of the child tax credit that was initially approved during the COVID-19 pandemic to help families navigate the economic uncertainty caused by the pandemic. Specifically, according to Roll Call, the deal would allow low-income families with more than one child to qualify for more of the credit more quickly. It also would make more of the credit available as a refund, meaning it could be accessed by families who have no federal tax liability. The current $1,600 per child limit also would be raised — to $1,800 for 2023, and gradually to $2,000 by 2025. And the agreement would index the total credit, currently capped at $2,000 per child, to inflation starting in 2024.
The expanded tax credit would provide $33 billion in relief to families through tax year 2025. This provision has been a significant priority for Democrats.
Second, the outline contains $33 billion in relief for businesses by reinstating a set of expired business tax benefits. Specifically, the deal would:
Allow businesses to deduct their domestic research and development investments all at once instead spreading them over five years;
Reinstate a more generous cap on interest payments deductions that was put in place by the 2017 tax reform law signed into law by former President Donald Trump, but that phased out in 2022; and
Extend a provision from that 2017 law that had allowed businesses to deduct all of their investments in short-term assets like machinery and other equipment. That deduction fell to 80 percent of those purchases in 2023 and was set to phase out entirely by 2027.
These provisions, which were priorities for Republican lawmakers, also would last through tax year 2025.
Finally, the proposed legislation would expand the Low-Income Housing Tax Credit, a program that is meant to encourage the development of housing for families who survive below the poverty line, provide tax relief for federal disaster victims, and offer tax breaks for Taiwanese workers and companies operating in the United States.
To ensure these lost revenues do not add to the federal deficit, the negotiators propose to accelerate the end of the Employee Retention Tax Credit (ERTC), a program that also was instituted during the COVID-19 pandemic and was meant to encourage employers to retain workers despite the economic uncertainty. Members of both parties have criticized how the ERTC has been managed and, last year, the Internal Revenue Service (IRS) placed a moratorium on processing new claims in order to allow the agency to add more safeguards “to prevent future abuse [and] protect businesses from predatory tactics.”
Broad Array Of Interest Groups Support Deal. Will Voters Do The Same?
As Roll Call reported this morning, “The package received a positive response from business and some, but not all, left-of-center policy groups.”
Business Roundtable CEO Joshua Bolten praised the business tax cuts. “All three of these tax policies have a long history of bipartisan support and are critical to strengthening America’s global competitiveness,” he said. Business groups seem likely to support the child tax credit, which would aid at least some of their workforce, as long as they are combined with companies’ tax priorities.
The left-of-center group Center on Budget and Policy Priorities also voiced support for the agreement. The group explained, “The proposal’s top priority is getting more of the credit to most of the roughly 19 million children who currently get a partial credit or none at all because their families’ incomes are too low. In the first year, more than 80 percent of the roughly 19 million children under 17 in families with low incomes who don’t now get the full credit would benefit — about 16 million children.”
Patriotic Millionaires, an organization that promotes higher taxes on wealthy Americans, offered a mixed review. Founder Erica Payne called the child credit expansion an “undeniable good,” but said, “I’m disgusted by those who saw the obvious need to extend those benefits as an opportunity to extract tax cuts for corporations, who clearly didn’t need them as they pulled in record profits and artificially pumped up inflation.”
Surveys taken last year around federal tax filing season in 2023 indicate Americans may have similarly mixed feelings. Last May, Gallup reported:
Six in 10 Americans said they believe the amount of federal income tax they pay is “too high.” That number was higher than at any time since 2001.
Forty-six percent of Americans said they believe the income tax they pay is fair, a number that was essentially tied with Gallup’s lowest level.
A new high of 51 percent of Americans said they believe their income taxes are not fair.
More Americans say federal income tax is the worst, or least fair, tax.
“Americans were last this critical of income taxes in 2001, before George W. Bush signed the first of two major tax cut laws passed during his term,” Gallup noted. “Since then, no presidents have significantly raised federal income tax rates for lower- and middle-income Americans.”
Regarding business taxes, last April, the Pew Research Center found 61 percent of Americans said they feel some corporations do not pay their fair share in taxes.
Will The Bipartisan Tax Deal Make It Through Congress?
While members of both parties, and advocacy groups on both sides of the ideological spectrum, praised the deal, its path to President Biden’s desk is uncertain at best.
The New York Times said, “major hurdles remain,” including the fact that:
Congress remains primarily focused on funding the government before a shutdown deadline that hits in two days;
Conservative House Republicans are irritated with Speaker Mike Johnson (R-La.) about that spending deal and may not be ready to agree to another bipartisan budget-related outline; and
The deal “faces resistance from many Senate Republicans” and from House Democrats who “have argued that it should do more to expand the child tax credit.” The article notes other top Democrats on the House Ways and Means Committee and other top Republicans on the Senate Finance Committee “notably have not endorsed the package.”
Indeed, Sen. Mike Crapo (R-Idaho), the top Republican on the Senate Finance panel, said he supports reviving business tax benefits and is open to “an appropriate child tax credit set of provisions,” but will seek certain — yet unspecified — changes to the outline. “As is always the case, the devil is in the details,” Sen. Crapo said. “And we’ve got to get the details.”
Lawmakers from high tax states also could rebel. That is because the deal does not include a provision to raise the $10,000 cap on state and local income tax deductions, a priority for both Republicans and Democrats from states like California, New York, and New Jersey.
As of this morning, it also is unclear whether President Biden would be willing to sign the bill if Congress approves it. In fact, a statement from the White House was vague. “The president is proud that the expanded child tax credit he fought for and signed into law cut child poverty nearly in half in 2021 and provided breathing room for tens of millions of families with children,” said the spokesman, Michael Kikukawa. “He remains committed to fighting for the full expanded child tax credit.”
In other words: Don’t spend those tax cuts yet.