Negotiators move closer to restoring expanded federal child tax credit
President Joe Biden expanded the child tax credit during the COVID-19 pandemic, but it expired after just one year. Now lawmakers are finalizing a deal to restore the expanded federal child tax credit. The deal to expand pandemic-era deductions would come in exchange for extending and restoring some popular tax breaks for businesses.
Expanding the federal child tax credit in exchange for business benefits.
Lawmakers in Congress are reportedly negotiating to partially revive the expanded federal child tax credit for low-income families. The president expanded the child tax credit in 2021, but it expired that same year due to Republican opposition.
Since then, Democrats have worked to revive the credit that has lifted millions of low-income families out of poverty. The expanded child tax credit ensures that low-income families who are often excluded from the credit because they don’t pay income taxes can receive some federal assistance.
Negotiations are still ongoing, but the total package cost is estimated at $50 billion to $80 billion. Democrats are focused on increasing the cash portion of the child tax credit families receive if they don’t owe the IRS. Currently, eligible families can claim $1,600 of the $2,000 credit per child in cash.
Republicans, on the other hand, want to expand several deductions they believe could increase business investment. Two of those provisions are: Allows businesses to deduct capital expenses immediately rather than spreading them out over several years. It allows companies to amortize research and development costs.
Several Democrats and conservative groups, including the National Taxpayers Union and Americans for Tax Reform, also support these business stimulus measures.
Will it be a deal?
Rep. Jason Smith (R-Missouri) and Sen. Ron Wyden (D-Oregon) are working on a deal to expand the child tax credit as well as business tax cuts. Even if top tax lawmakers in the House and Senate reach an agreement, it’s unclear whether the rest of Congress will approve the deal. Nonetheless, this deal, even if it fails, could serve as a foundation for future deals between the two sides.
“I’m trying to get the biggest tax cut possible for working families,” Senator Wyden told HuffPost. “There are many ways to do that,” he said.
The package to restore the expanded federal child tax credit and business benefits would be funded in part by diverting funds from another pandemic-era tax credit, the Employee Retention Tax Credit (ERC). ERC programs, which encourage companies to retain employees, have faced severe criticism for potentially encouraging fraud. Many also believe that the ERC is no longer needed and that unemployment is much lower than it used to be.
Senator Wyden believes January 29th, which also marks the start of tax filing season, is the deadline for the changes to be submitted to President Biden.