Sep 9, 2022 - Politics & Policy

White House and Senate Democrats eye child tax credit Hail Mary

Democrats with child tax credit sign
Sen. Sherrod Brown (D-Ohio) and other Democrats at a February press conference about the child tax credit. Photo: Win McNamee/Getty Images

The White House is engaging with Senate Democrats about making one last push for an enhanced child tax credit this year — and in return for GOP votes, may dangle support for corporate tax credits for research and development that expired last year, Axios has learned.

Why it matters: Some Democrats see a year-end legislative horse-trade as their last chance to enshrine some version of President Biden’s enhanced child tax credit into law before Republicans take one — or both — chambers of Congress.

  • A compromise package would require 60 votes in the Senate, meaning that at least 10 Republicans would need to support it without any Democratic defections.
  • In response to the Supreme Court decision on Roe v. Wade, some Republican senators, including Mitt Romney (R-Utah) and Marco Rubio (R-Fla.), have been floating pro-family policies, including a cheaper and less expansive version of Biden's child tax credit.

But, but, but: A Hail Mary tax package would face not only a ticking congressional clock but also potential opposition from Sen. Joe Manchin (D-W.Va.) — who may not be willing to support more deficit spending.

Context: Republicans and Manchin let Biden’s one-year child tax credit, which provided families with up to $3,600 per child, expire at the end of 2021.

  • After some discussions about lowering the income caps and including it in a slimmed-down version of Build Back Better, the tax credit ultimately didn't make it into the Inflation Reduction Act that Biden signed into law in August.
  • To lower the costs of his 2017 corporate tax cuts, President Trump covered only four years of the R&D credits, putting an expiration date on tax incentives that had long been in place for corporations.
  • Republicans were banking on a future Congress to extend them, but 2021 passed without any action and they lapsed. Business groups have been looking for opportunities all year to restore them.

Driving the news: Biden officials have been in quiet conversations with Democratic senators, including Sen. Michael Bennet (D-Colo.) — one of the child tax credit's main champions — to discuss how to get a deal.

  • “It is a priority for the White House and it's absolutely a priority for me,” Bennet told Axios. "We should have never allowed it to sunset, and I think we can find a way at the end of the year."
  • "I would be very reluctant for us to extend things like the R&D tax credit for business enterprises, without extending this important tax cut for working families," he said. "And I hope we can come to an agreement on that."

The big picture: Congress will return to Washington after November’s election for a lame-duck session, in which funding the government, and potentially a debt-ceiling package, will be atop the agenda.

  • But taking action on a child tax credit is clearly a priority for Democrats, who feel they have found a potential point of leverage over Republicans, according to Business Insider.

Between the lines: If Democrats retain control of both chambers — and pad their majority in the Senate — there will be less urgency to fiddle with the tax code this year.

  • Biden will want to use a potential 2023 budget reconciliation package to revive many of his Build Back Better priorities that were vetoed by Manchin.
  • The Senate’s initial $3.5 trillion dollar legislation, with fresh funding to dramatically expand the social safety net, was ultimately trimmed to a $740 billion package that only included new money for climate, health care and the IRS.

What they're saying: "I've got a proposal that has a good deal of support on our side of the aisle,” Sen. Mitt Romney (R-Utah) told Axios. "I have not really socialized it yet on the other side of the aisle.”

  • "I've had conversations with the White House," Romney said. "They say they have interest and we'd like to chat about it."
  • “Would I like there to be a deal? Absolutely," said Sen. Mark Warner (D-Va.). “I think they are both good policies."
  • "I am for both the child tax credit and I'm for the R&D," said Ron Wyden (D-Ore.), chair of the Senate Finance Committee.
  • "We're simply not going to help business, help big corporations, without helping the child tax credit," said Sen. Sherrod Brown (D-Ohio). "This administration is full in on this."

Be smart: Bennet, who is facing a stiff challenge from moderate Republican Joe O'Dea, would love to have movement on the child tax credit before the election to help motivate his progressive base.

  • But he’s realistic about the short-term prospects: "I don't think plausibly it will be done before my election," he said.

Editor's note: Additional context has been added on the history of the R&D tax credits.

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