Bipartisan Tax Deal Would Provide Boost to Busine
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Posted On: 01/16/2024 10:30:35 AM
Bipartisan Tax Deal Would Provide Boost to Businesses, Families -- 2nd Update
By Richard Rubin
WASHINGTON -- Top U.S. lawmakers unveiled a bipartisan tax agreement that would revive expired breaks for businesses and increase the child tax credit for low-income families, and they are aiming to push the $78 billion in tax breaks through Congress in the next few weeks.
The deal comes from Sen. Ron Wyden (D., Ore.) and Rep. Jason Smith (R., Mo.), ideological opponents who found common ground after months of talks but face challenges in advancing the plan further.
Their proposal would retroactively reverse several business-tax changes that had been set in motion by Republicans in the 2017 tax law and took effect over the past few years. Companies with interest costs, capital expenses and research spending would all benefit.
Smith, chairman of the House Ways and Means Committee, and Wyden, chairman of the Senate Finance Committee, would also provide low-income households with more money from the child tax credit. That expansion would start with the 2023 tax returns that people will begin filing Jan. 29.
The Smith-Wyden plan would also cut off new claims for the employee retention tax credit, the pandemic-era program that the Internal Revenue Service says is riddled with fraud. Under the plan, the deadline to file claims for the credit would be Jan. 31 instead of as late as April 2025. The IRS has paused processing new claims while it scrutinizes its existing queue but is still required to accept them under current law.
Credit promoters would face stiffer penalties for aiding and abetting understatement of taxes and face new requirements to disclose information and client lists to the IRS. Those changes to the ERC are expected to save more than $70 billion, the lawmakers said, and would mean the bill would have little or no net impact on budget deficits.
"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.
The beginning of tax-filing season is a rough deadline for getting the bill through Congress because waiting longer would create refund delays and challenges for the IRS. Finishing by the end of January, however, is a tall task for lawmakers who have at times struggled to keep the government open.
Senate Republicans were wary as the deal was being negotiated, while some Democrats want a larger child tax credit. Rep. Richard Neal (D., Mass.) and Sen. Mike Crapo (R., Idaho), the top minority members on the tax-writing committees, weren't part of Tuesday's Smith-Wyden announcement.
A Neal spokeswoman declined to comment Tuesday. Crapo described the deal as a "thoughtful starting point" for the House and noted the short timeline. Michael Kikukawa, a White House spokesman, said the administration appreciates the child-credit expansion and is reviewing the full agreement.
"Given today's miserable political climate, it's a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead, " Wyden said. "My goal remains to get this passed in time for families and businesses to benefit in this coming tax filing season, and I'm going to pull out all the stops to get that done."
Businesses, including defense contractors and manufacturers, have been urging Congress to act. The 2017 tax law required companies to spread deductions for domestic research costs over five years rather than deducting them immediately.
That provision took effect in early 2022, and the revenue it generated was designed to help pay for cutting the corporate tax rate. But it caused cash-flow problems for large research-intensive companies and crises for small ones who faced big tax bills they hadn't expected.
The bill would restore those research deductions retroactively from 2022 and extend them through 2025. Deductions for foreign research would still be spread across several years.
The bill would also restore full, immediate deductions for many capital expenses, a policy from the 2017 tax law that was in place through 2022. Under current law, that bonus depreciation gradually goes away over the next few years. The Smith-Wyden agreement would also give businesses a looser limit on deductions for interest expenses.
Many Democrats support those business changes, but they weren't willing to help Republicans change the Republican-written tax law without an expansion of the child tax credit. That basic trade -- business breaks for child credit -- had been discussed for more than a year before Smith and Wyden found an approach they could both support.
"The Ds are getting some things that they want to work on," said Rep. Greg Steube (R., Fla.) "Republicans are getting things they want to work on."
The child tax credit expansion doesn't restore the full credit that Democrats put in place for 2021 and cite as a success in fighting child poverty.
Re-creating that 2021 version was off the table this time because Republicans opposed providing the entire credit to families without earnings. The Smith-Wyden agreement retains a work requirement, but low-income families who don't pay income taxes could get up to $1,800 of the $2,000 per-child credit instead of the current $1,600. Other changes would benefit low-income families with multiple children.
By 2025, the full credit would rise with inflation above $2,000 and low-income families could get up to $2,000 of it. This year, the plan would benefit three million children and lift 400,000 out of poverty, according to the Center on Budget and Policy Priorities, a progressive group.
"If you go back six months ago, nobody thought it was possible," said Sen. Sherrod Brown (D., Ohio). "It's not as much as we want, of course. But to get Republicans to be willing to do this is really, really a big deal. It goes to help the kids and the families that need it most."
Smith and Wyden set the business breaks and child tax credit expansion to expire after 2025. That deadline lines up these provisions with the other major pieces of the 2017 tax law, which also lapse then. If the Smith-Wyden agreement gets through Congress, it sets up one large tax-policy fight full of expiring provisions, to be settled by whoever wins this year's presidential and congressional elections.
If Congress extended the Smith-Wyden tax breaks after next year, the cost would be far larger than $78 billion.
The Smith-Wyden agreement contains several other provisions. It would expand the low-income housing tax credit and extend tax breaks to victims of natural disasters. Starting in tax year 2024, businesses that use independent contractors would have to send them informational tax forms once they pay $1,000, up from a $600 threshold that has been in place for decades.
By Richard Rubin
WASHINGTON -- Top U.S. lawmakers unveiled a bipartisan tax agreement that would revive expired breaks for businesses and increase the child tax credit for low-income families, and they are aiming to push the $78 billion in tax breaks through Congress in the next few weeks.
The deal comes from Sen. Ron Wyden (D., Ore.) and Rep. Jason Smith (R., Mo.), ideological opponents who found common ground after months of talks but face challenges in advancing the plan further.
Their proposal would retroactively reverse several business-tax changes that had been set in motion by Republicans in the 2017 tax law and took effect over the past few years. Companies with interest costs, capital expenses and research spending would all benefit.
Smith, chairman of the House Ways and Means Committee, and Wyden, chairman of the Senate Finance Committee, would also provide low-income households with more money from the child tax credit. That expansion would start with the 2023 tax returns that people will begin filing Jan. 29.
The Smith-Wyden plan would also cut off new claims for the employee retention tax credit, the pandemic-era program that the Internal Revenue Service says is riddled with fraud. Under the plan, the deadline to file claims for the credit would be Jan. 31 instead of as late as April 2025. The IRS has paused processing new claims while it scrutinizes its existing queue but is still required to accept them under current law.
Credit promoters would face stiffer penalties for aiding and abetting understatement of taxes and face new requirements to disclose information and client lists to the IRS. Those changes to the ERC are expected to save more than $70 billion, the lawmakers said, and would mean the bill would have little or no net impact on budget deficits.
"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.
The beginning of tax-filing season is a rough deadline for getting the bill through Congress because waiting longer would create refund delays and challenges for the IRS. Finishing by the end of January, however, is a tall task for lawmakers who have at times struggled to keep the government open.
Senate Republicans were wary as the deal was being negotiated, while some Democrats want a larger child tax credit. Rep. Richard Neal (D., Mass.) and Sen. Mike Crapo (R., Idaho), the top minority members on the tax-writing committees, weren't part of Tuesday's Smith-Wyden announcement.
A Neal spokeswoman declined to comment Tuesday. Crapo described the deal as a "thoughtful starting point" for the House and noted the short timeline. Michael Kikukawa, a White House spokesman, said the administration appreciates the child-credit expansion and is reviewing the full agreement.
"Given today's miserable political climate, it's a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead, " Wyden said. "My goal remains to get this passed in time for families and businesses to benefit in this coming tax filing season, and I'm going to pull out all the stops to get that done."
Businesses, including defense contractors and manufacturers, have been urging Congress to act. The 2017 tax law required companies to spread deductions for domestic research costs over five years rather than deducting them immediately.
That provision took effect in early 2022, and the revenue it generated was designed to help pay for cutting the corporate tax rate. But it caused cash-flow problems for large research-intensive companies and crises for small ones who faced big tax bills they hadn't expected.
The bill would restore those research deductions retroactively from 2022 and extend them through 2025. Deductions for foreign research would still be spread across several years.
The bill would also restore full, immediate deductions for many capital expenses, a policy from the 2017 tax law that was in place through 2022. Under current law, that bonus depreciation gradually goes away over the next few years. The Smith-Wyden agreement would also give businesses a looser limit on deductions for interest expenses.
Many Democrats support those business changes, but they weren't willing to help Republicans change the Republican-written tax law without an expansion of the child tax credit. That basic trade -- business breaks for child credit -- had been discussed for more than a year before Smith and Wyden found an approach they could both support.
"The Ds are getting some things that they want to work on," said Rep. Greg Steube (R., Fla.) "Republicans are getting things they want to work on."
The child tax credit expansion doesn't restore the full credit that Democrats put in place for 2021 and cite as a success in fighting child poverty.
Re-creating that 2021 version was off the table this time because Republicans opposed providing the entire credit to families without earnings. The Smith-Wyden agreement retains a work requirement, but low-income families who don't pay income taxes could get up to $1,800 of the $2,000 per-child credit instead of the current $1,600. Other changes would benefit low-income families with multiple children.
By 2025, the full credit would rise with inflation above $2,000 and low-income families could get up to $2,000 of it. This year, the plan would benefit three million children and lift 400,000 out of poverty, according to the Center on Budget and Policy Priorities, a progressive group.
"If you go back six months ago, nobody thought it was possible," said Sen. Sherrod Brown (D., Ohio). "It's not as much as we want, of course. But to get Republicans to be willing to do this is really, really a big deal. It goes to help the kids and the families that need it most."
Smith and Wyden set the business breaks and child tax credit expansion to expire after 2025. That deadline lines up these provisions with the other major pieces of the 2017 tax law, which also lapse then. If the Smith-Wyden agreement gets through Congress, it sets up one large tax-policy fight full of expiring provisions, to be settled by whoever wins this year's presidential and congressional elections.
If Congress extended the Smith-Wyden tax breaks after next year, the cost would be far larger than $78 billion.
The Smith-Wyden agreement contains several other provisions. It would expand the low-income housing tax credit and extend tax breaks to victims of natural disasters. Starting in tax year 2024, businesses that use independent contractors would have to send them informational tax forms once they pay $1,000, up from a $600 threshold that has been in place for decades.
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