In a departure from recent congressional showmanship, legislators appear to have settled on a win-win proposition that addresses priorities for both parties. Low-income children, businesses and taxpayers all benefit from an agreement announced Tuesday.
After months of negotiations, a plan has come together to renew expansions to the child tax credit and rekindle some business tax breaks. Equally important, it will be paid for by the ending of a different tax break that was often fraudulently claimed.
In an age of congressional intransigence, the deal could be scuttled by fringe Republicans in the House of Representatives. But for now, it is a reflection of how Congress is supposed to work — give-and-take leading to compromise that does not vastly contribute to the deficit.
For that, Sen. Ron Wyden, D-Ore., and Rep. Jason T. Smith, R-Mo., deserve credit. They are the leaders of the tax-writing committees in their respective chambers and announced the agreement this week. “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,” Smith said.
One plank of the deal includes an expansion of approximately $30 billion for the child tax credit. A pandemic-era increase quickly lifted a large percentage of American children out of poverty, but that provision was allowed to sunset. Poverty rates quickly returned to pre-pandemic levels, and Democrats have pushed for a renewal of the larger credits.
The Center on Budget and Policy Priorities estimates that the new proposal would lift 400,000 children out of poverty in its first year and would assist another 3 million. The COVID expansion of the child tax credit had a demonstrable impact on the lives of millions of children, proving that our nation can reduce poverty if we have the will.
Meanwhile, the new agreement also will renew tax breaks for business, focusing on investment in research and development and a faster depreciation for various capital investments. Republicans had sought a renewal of some provisions that were dropped to reduce the cost of the 2017 tax cuts.
Equally important, the proposal includes a funding mechanism. It calls for ending the Employee Retention Credit, a tax break passed in response to the COVID pandemic that paid employers for keeping staff on the payroll. As The Wall Street Journal wrote editorially in December: “The COVID employee retention tax credit is turning into a classic case of government waste and fraud. Congress created the mess, leaving it to the IRS to mop up.”
While Congress now is taking steps to clean up that mess, this week’s agreement also should serve as a harbinger for future tax policy. Many provisions of the Tax Cuts and Jobs Act of 2017 are set to expire in 2025, raising taxes for many Americans. Most business tax cuts in the act have no sunset date, but individual taxpayers likely will see their income tax increase if there is not additional action by Congress.
As an analysis from the Brookings Institution says: “This is a moment that will offer a chance to reverse the dominant trends of recent decades, which have reduced fiscal sustainability due to increases in spending without commensurate revenue-raising.”
Such a reversal might seem unlikely in a Congress where rhetoric often is mistaken for leadership. But the tax agreement announced this week provides a modicum of hope that legislators will actually legislate.
