The House tax-writing panel advanced the major bipartisan proposal that would expand the child tax credit and renew key business investment deductions.
The Ways and Means Committee advanced the bipartisan proposal on Friday in an overwhelming 40-3 vote. The Tax Relief for American Families and Workers Act, which was negotiated between Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR), would expand the child tax credit while also restoring some now-expired tax provisions for businesses.
“When we travel back to our districts next week, we can show our constituents who are struggling with inflation and high interest rates that when Congress works together, we can still achieve big things: bipartisan tax relief that grows wages, supports better jobs, gives families more breathing room, and keeps America competitive on the world stage,” Smith said during the hearing.
The bill would bolster the child tax credit by changing the calculation of the credit on a per-child basis to make it more generous. It would also increase the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in 2024, and $2,000 in 2025.
Refundability is the ability for households with no tax liability to receive a check from the government. The new proposal raises the current $1,600 cap on the amount of the credit that is refundable. The change would most benefit lower-income families, given they pay little to nothing in income taxes.
The bill also renews a tax deduction for research and development costs for businesses, something that business groups have been lobbying for and the GOP has prioritized. Since the break expired, companies have had to amortize R&D expenses, meaning they faced a higher tax burden.
The agreement also temporarily pauses the phaseout of bonus depreciation. That was a provision in the 2017 Trump tax cuts that allowed companies to write off certain capital expenditures immediately instead of having those deductions written off over the “useful life” of the asset.
The business provisions had bipartisan support even before the bolstered child tax credit, a key priority for Democrats, was included in the proposal.
“The bill before us today represents bipartisan policies that are proven and effective; commonsense fixes to the tax code that will rebuild our communities, support better jobs and wages, and grow our economy,” Smith said.
Still, some Democrats on the committee said the current tax package didn’t go far enough in expanding the child tax credit. Several Democrats voted for the legislation even as they said it wasn’t ideal.
In 2021, shortly after President Joe Biden was sworn into office and Democrats held both chambers of Congress, Democrats boosted the child tax credit by a massive degree, but that enhancement has since expired.
At the time, Congress raised it to $3,600 for children under 6 and $3,000 for older children, with perhaps the biggest change being the removal of an income threshold for those who receive the funds. Thus, a family with no income or head of household working would receive the full $3,600 or $3,000 payments. The boosted tax credit sunset at the end of 2021.
Republicans largely opposed the temporary pandemic-era expansion because of the lack of work requirements. They equated it to welfare without work.
Expanding the child tax credit (while still including work requirements) has become increasingly popular within the Republican caucus. Some lawmakers see incentivizing family growth and helping poor people with children as complementary to opposing abortion, particularly in the wake of the Supreme Court reversing the Roe v. Wade decision that legalized abortion nationwide.
For instance, Sens. Marco Rubio (R-FL) and Mike Lee (R-UT) in 2021 introduced a proposal that would have boosted the child tax credit to $3,500 per child and $4,500 per child under the age of 6.
The expansion that passed out of committee on Friday would not add to the national debt, at least on paper. The Joint Committee on Taxation, Congress’s scorekeeping outfit for tax legislation, found that the bill would cut taxes by about $80 billion, but it would be fully paid for by changes to the pandemic-era employee retention credit.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The bill is written so that its tax cuts sunset in 2025, but if they were instead made permanent, it would cost $645 billion through 2033, according to the Committee for a Responsible Federal Budget, an outside group that advocates lower deficits.
The Tax Relief for American Families and Workers Act will now move to the full House, which is expected to give it an up or down vote in the coming weeks. The Senate will also have to approve the proposal.