Dec 11, 2023 - Politics & Policy

Congress eyes last-minute child tax credit deal

Sen. Sherrod Brown (D-Ohio). Photo: Nathan Howard/Bloomberg via Getty Images

Members of the House and Senate are engaged in advanced, last-minute negotiations to reach a tax deal in December or January that includes key priorities for both parties, according to lawmakers and aides.

Why it matters: Heading into the 2024 election, Democrats want to resurrect a version of the child tax credit, which expired last year, to lower childhood poverty and give their vulnerable members a tangible policy win.

  • Republicans are eager to prove to the business community that the House GOP majority can deliver for them by reinstating the full deductibility of research and development investments that expired at the end of 2022.
  • Any compromise between the key tax writing committees would have to be prioritized by House and Senate leaders. At an estimated $100 billion, it would also be expensive.

The intrigue: The twin provisions have supporters in both parties, with conservative groups making a pro-family argument for the CTC last month and many Democrats insisting they want to help the business community.

Driving the news: Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Way and Means Chairman Jason Smith (R-Mo.) are working on a package that can clear the House either in December or January.

  • "Jason Smith and I are talking. [Sen. Mike] Crapo (R-Idaho) and I are talking. We are going to continue," said Wyden.
  • "Talks are further along than most people realize," said a senior GOP lawmaker. "All parties are aware that a December timeline is difficult, but that there is a window early next year."

Zoom out: The late-season negotiations are a precursor to the big tax fight that will dominate the 2025 legislative calendar, when many of the individual provisions in former President Trump's 2017 cuts are scheduled to expire.

  • Lawmakers are seeking to lock in their priorities now.
  • Whoever wins the presidency in 2024 will have to work with Congress to determine which of the tax brackets will snap back to higher rates, with the top bracket at 39.6%.
  • If Congress doesn't act, taxes will increase for many Americans at the end of 2025.

Zoom in: Most of the corporate tax cuts championed by Trump in his 2017 were made permanent.

  • But to lower the overall price tag of the bill, lawmakers let some corporate provisions expire, including full-expensing in one year for R&D investments.
  • Democrats, many of whom support the R&D provisions, still want to use them as leverage to convince Republicans to back a child tax credit for families.
  • The version Biden included in 2021 provided families with up to $3,600 per child, but cost $1.6 trillion over 10 years.
  • The enhanced CTC, which was opposed by Sen. Joe Manchin (D-W.Va.) during the Build Back Better negotiations of 2022, expired at the end of that year.
  • The CTC version currently being discussed includes stricter eligibility and lower payments, costing roughly $50 billion over two years.

What they're saying: "It's probably not going to be as big as it was '21 and '22. But it's got to be significant. It's got to make a huge difference in working class families' lives," said Sen. Sherrod Brown (D-Ohio), one of the most vulnerable Democrats up for re-election next year.

  • "The challenge is to get to an agreement, then find the vehicle," Brown told Axios. "I think if you get to the agreement, the chances of getting a vehicle are pretty high."
  • "I am optimistic that a deal can be reached," said Todd Metcalf, a principal at PwC's tax policy services group, suggesting that it's more likely in early 2024. "They're close."

What we're watching: Both sides are eyeing legislation to codify a new trade agreement with Taiwan that would also include a potential tax agreement.

Between the lines: This December's year-end tax scramble is different from last year's in that both sides are suggesting January is a more likely scenario.

  • "It doesn't look as if there's going to be a tax bill this year," said former Ways and Means Chair Dave Camp (R-Mich.) at a PwC tax conference. "But hearing from [Chairman Smith], it really seemed as if it's going to be next year."

The bottom line: Congress is having a hard time agreeing to must-pass appropriations bills. A nearly $100 billion tax deal — even if it's just a two-year package — will face numerous challenges.

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