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Bipartisan Tax Package Expanding Child Tax Credit Clears House with Rare Support

In a significant move on Wednesday evening, the House approved a $78 billion bipartisan tax package, marking a temporary expansion of the child tax credit and the reinstatement of various business tax benefits. The bill, now headed to the Senate, gained traction with rare bipartisan backing despite Speaker Mike Johnson managing a razor-thin majority.

The House vote tallied 357 in favor and 70 against, with 188 Democrats and 169 Republicans supporting the measure, while 23 Democrats and 47 Republicans opposed it. The proposed legislation aims to offer a more substantial credit in the initial year to approximately 16 million children from low-income families, constituting over 80% of those currently not receiving the full credit due to their families’ limited earnings.

According to the Center on Budget and Policy Priorities, a left-leaning organization, this package could lift at least half a million children out of poverty and improve the financial circumstances of about 5 million more children below the poverty line, once fully implemented in 2025.

Moderates, particularly from New York, expressed reservations about the bill due to its failure to raise the cap on the federal deduction for state and local taxes. Despite pushback, the impact on the federal budget is expected to be minimal, with a reduction of less than $400 million over the next decade.

Child Tax Credit Enhancement and Concerns

The majority of enhancements in the child tax credit are designed to benefit lower-income families. The deal proposes an increase in the maximum refundable credit for households with little or no income taxes. Families with multiple children in low-income brackets would now receive the same credit for each child, similar to higher-income households. Additionally, families can choose to utilize their earnings from the current or prior year, allowing flexibility for those with volatile incomes.

Starting in 2024, the credit would be adjusted for inflation, projecting a maximum credit of $2,100 per child in 2025, up from the current $2,000. The provisions are set to be in effect for three tax years, spanning from 2023 to 2025.

Concerns from some Republicans include worries about potential disincentives to work and the prospect of undocumented immigrants claiming the credit. However, House Ways and Means Chairman Jason Smith reassured that the deal maintains the minimum earnings threshold of $2,500 required to qualify for the credit and the stipulation that children must have Social Security numbers for their families to be eligible.

Some Democrats, including Rep. Rosa DeLauro of Connecticut, voiced disappointment that the deal does not extend the full credit to more families with little to no income.

Business Tax Benefits and Other Relief Measures

In addition to the child tax credit enhancements, the bipartisan deal temporarily reinstates various business tax benefits. These benefits, initially part of the 2017 Tax Cuts and Jobs Act, include the immediate deduction of US-based research and experimentation investments, 100% deduction of machinery and equipment investments, and relaxed limits on interest expense deductibility—all valid through 2025.

The bill also addresses relief for individuals affected by disasters, such as hurricanes, flooding, wildfires, and the Ohio train derailment in East Palestine last year. Furthermore, the package aims to boost the Low-Income Housing Tax Credit to enhance the supply of affordable housing.

Notably, the deadline for filing backdated claims for the Employee Retention Tax Credit, a Covid-19-era program susceptible to fraud, would be accelerated to January 31, 2024, instead of April 15, 2025. This provision is estimated to save taxpayers over $78 billion, effectively offsetting a significant portion of the overall package cost, according to the Joint Committee on Taxation.