House members voted Wednesday evening to approve a bipartisan $78 billion tax relief bill, expanding child tax credit and strengthening three business tax breaks, while adding new low-income housing credit and expedited disaster relief measures.
This bill should pass the Senate with ease; however, some Republican state representatives in some states, like those from New York have voiced opposition due to its failure to increase federal deductions for state and local taxes beyond $10,000.
Child Tax Credit
This bill expands the child tax credit and expands three business tax breaks, giving lawmakers on both sides of the aisle much-coveted policy wins. If passed successfully, this would represent a major victory in an otherwise deeply divided Congress that has struggled to pass meaningful bills through committee and into law.
The topline child tax credit would increase to $2,100 from its current $2,000 level, adjusted annually for inflation from 2023 and beyond. This would raise after-tax incomes for families with moderate and higher incomes while having no significant effect on lower-income households, according to the left-leaning Tax Policy Center.
This bill allows low-income families to use prior year earnings when calculating their child tax credit, in an attempt to protect against sudden decreases in income which could worsen financial hardship. Negotiated by House Ways and Means Committee Chair Jason Smith and Senate Finance Committee Chairman Ron Wyden, it also enables families to receive their full child credit check as a cash transfer with some portions extended as refundable credits.
Business Tax Breaks
House Leadership broke with tradition when they negotiated a tax deal without holding hearings and showing its details to members before bringing it up for debate on the floor. Their proposal revives several business tax breaks while expanding Child Tax Credit for millions of families.
These tax breaks are more costly than they appear, favor mostly the well-off and may fail to meet their stated policy goals. Furthermore, the bill employs budget gimmicks in order to conceal their true costs by temporarily extending them for multiple years.
This bill is funded by increasing affordable housing construction credits, ending COVID-19 Employee Retention Tax Credit fraud-prone programs and moving up filing backdated claims deadline three months earlier than originally set. Furthermore, this measure ends double taxation of companies operating in Taiwan as well as provides disaster relief tax breaks to homeowners.
Low-Income House Credits
Families earning below the median income in their area often struggle to find affordable rental properties. To address this challenge, the federal government created a tax credit for developers and investors who finance construction or renovation of affordable rental housing projects; it rewards these individuals by decreasing their federal taxes dollar-by-dollar over ten years.
Smith and Wyden’s bill combines elements from multiple existing proposals. It increases refundable child tax credits, lifts restrictions on affordable housing construction credits, and eliminates double taxation for companies operating both in Taiwan and the U.S.
House lawmakers approved an 83-page bill on Jan. 31, though its fate in the Senate remains uncertain. Progressives contend it offers too many breaks to businesses while failing to address racial inequality or rising poverty rates; Smith in contrast contends the bill “locks in $600 billion of pro-growth, pro-worker, pro-American tax policies”. It should pass with support from moderate members from both parties.
SALT Relief
New York congressional representatives want to raise the $10,000 cap on deductions for state and local taxes (SALT), which currently benefits higher-income taxpayers. A group of Republican lawmakers formed a caucus to push for this change; it remains to be seen if they can convince other members to support tax packages without an increase for SALT deductions.
An increase in SALT taxes would raise taxes for some taxpayers. That is the cost of reform that limits special interest tax provisions that provide large benefits to the wealthiest; and any such increase would more than compensated for by increased standard deductions and lower tax payments for other types of households filing taxes.
Jason Smith wants to work constructively toward a solution on the State and Local Tax (SALT) issue, without risking defections from his members such as happened with their previous tax plan. To that end, he has met with members of the SALT Caucus such as Reps Mike Lawler, Nick LaLota and Andrew Garbarino to see where we stand on this matter.
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