Congress reveals a significant tax agreement to increase the child tax credit and reintroduce business breaks

On Tuesday, senior lawmakers in Congress unveiled a bipartisan deal aimed at expanding the child tax credit and introducing several tax breaks for businesses. The $78 billion tax agreement, brokered by House Ways and Means Chair Jason Smith (R-Mo.) and Senate Finance Chair Ron Wyden (D-Ore.), comes after months of negotiations in the divided Congress.

Despite still needing to be translated into legislation and garner the necessary votes in the Republican-led House and Democratic-led Senate, the top tax writers are optimistic about a swift passage before this year’s tax filings. Jason Smith expressed confidence in the bipartisan agreement, stating, “American families will benefit from this bipartisan agreement that provides greater tax relief, strengthens Main Street businesses, boosts our competitiveness with China, and creates jobs.”

The deal focuses on enhancing refundable child tax credits to offer financial relief to struggling families, especially those with multiple children. It seeks to eliminate the $1,600 refundable cap on the tax credit and adjust it for inflation. Ron Wyden emphasized the positive impact on low-income families, stating, “Fifteen million kids from low-income families will be better off as a result of this plan,” and highlighted the significance of passing pro-family policies in the current political climate.

According to an analysis by the Center on Budget and Policy Priorities, the new child tax credit policy would benefit approximately 16 million kids in low-income families, with the potential to meaningfully reduce child poverty. The expansion is projected to lift around 400,000 children above the poverty line in its first year, while an additional 3 million children would experience reduced poverty as their incomes move closer to the poverty line.

Democrats had pushed for a larger child tax credit, particularly after a previous version lapsed in less than a year, causing a temporary decline in child poverty. The new agreement, while providing smaller benefits compared to the monthly payments under the American Rescue Plan, aims to address these concerns. White House spokesman Michael Kikukawa reiterated President Biden’s commitment to advocating for the full expanded Child Tax Credit, as initially included in the 2021 law.

“We express our gratitude for the efforts of Chairman Wyden and Chairman Smith in advancing the cause of enhancing the Child Tax Credit for numerous families and endorsing the creation of additional affordable homes. We eagerly anticipate a thorough examination of the complete details of their agreement,” stated Kikukawa in a released statement.

Republicans were driven to resurrect certain expired components of the 2017 Trump tax cuts aimed at benefiting businesses. The agreement encompasses provisions such as expensing for research and experimental costs, reinstating an earlier interest deduction, broadening small-business expensing, and extending bonus depreciation, as outlined in a section-by-section summary provided by the two tax-writing committees.

“The agreement revealed today by Chairman Smith and Chairman Wyden provides a thoughtful foundation for the House to commence the legislative process,” remarked Sen. Mike Crapo, R-Idaho, the leading Republican on the Finance Committee. “I will continue collaborating with my Senate colleagues to garner widespread bipartisan support for a tax package that delivers appropriate relief for working families and businesses.”

Wyden has expressed his desire to pass the deal by the commencement of the tax filing season on January 29. However, this is not guaranteed, given that Congress is currently addressing other pressing priorities, particularly avoiding a government shutdown by week’s end and finalizing the funding process by March. The manner in which the tax deal would be presented, either as a standalone bill or attached to a government funding measure, remains uncertain.

If approved, this would represent a rare achievement in active legislating on a politically sensitive issue by a divided Congress that has, thus far, been historically unproductive.

“My objective remains to secure passage in time for families and businesses to benefit during this upcoming tax filing season, and I am committed to utilizing all available means to achieve that goal,” affirmed Wyden on Tuesday.