Tax Deal Hits the Wall

Tax Deal Hits the Wall

April 2, 2O24

A RARE BIPARTISAN DEAL to increase the child tax credit and give tax breaks to corporations has hit the wall, largely because the Senate is getting cold feet about still another expansion of government entitlement spending.

WITH THE BUDGET DONE and aid for Ukraine seemingly headed for passage, Congress is focusing on this tax measure, which looked like a potential bipartisan deal late last year - who could object to raising the child credit and giving some firms more tax breaks?

BUT IN THE SENATE WORLD of big egos, there's been grumbling that the upper chamber was not adequately consulted on the tax deal, negotiated by liberal Democratic Sen. Ron Wyden and House Ways and Means Chairman Jason Smith, a moderate Republican.

OPPOSITION HAS INCREASED IN RECENT WEEKS, led by the Senate Finance Committee's ranking Republican, Mike Crapo, who has raised concerns about the bill's child tax credit provisions. "Allowing individuals to receive a refundable credit when they have zero annual earnings," Sen. Crapo said in a recent statement, "is a departure from longstanding policy tying the credit to work." More than 90% of the new credit would flow to those who owe no income tax.

CRAPO AND MANY OTHER REPUBLICANS SAY the bill features a "lookback" provision in 2024 and 2025 that would allow parents to claim the credit on the prior year's earnings, even if they didn't work at all in the current year. Someone with three children could claim $4,800 of refundable credits with roughly $13,000 of income, down from the $34,500 needed now.

THE BILL HAD ATTRACTED SUPPORT FROM BUSINESS LOBBYISTS who want to pass the measure because it contains provisions like bonus depreciation for equipment. Another provision in the 2017 tax cuts that kicked in after 2021 requires amortizing domestic research and development costs over time.

BUT AS THE WALL STREET JOURNAL EDITORIAL PAGE points out this morning, these issues should be considered in 2025 as part of the huge debate over extending the 2017 Trump tax cuts. Passing the child credit hike and business tax breaks probably will be part of the 2025 debate and is increasingly unlikely to pass this year.

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