Lawmakers Unveil Bipartisan Tax Deal Restoring Trump-Era Tax Breaks and Expanding Child Tax Credit

A view of the U.S. House of Representatives, in Washington, on Oct. 25, 2023. (Win McNamee/Getty Images)

The leaders of the Senate Finance and House Ways and Means committees have announced a bipartisan bicameral $78 billion deal that pairs the revival of Republican-sought Trump-era tax breaks for businesses with expanding the child tax credit that Democrats have pushed for.

The two committee chairmen said in a joint statement on Jan. 16 that the proposal would bring back a range of tax deductions for businesses, while boosting the low-income housing tax credit and expand the child tax credit.

Other provisions of the deal—which, despite its bipartisan nature, faces an uncertain pathway through Congress—include disaster tax relief and ends the Employee Retention Credit program, a pandemic-era tax credit for businesses for not laying off employees that was hit by major cost overruns and led to some $3 billion in fraudulent claims.

“We even provide disaster relief and cut red tape for small businesses, while ending a COVID-era program that’s costing taxpayers billions in fraud,” House Ways and Means Committee Chairman, Rep. Jason Smith (R-Mo.) said in a statement.

If the legislation passes both the Democrat-controlled Senate and the GOP-controlled House—and is signed into law by President Joe Biden—it would generate over $70 billion by eliminating the pandemic-era tax credit, the two committee chairs said.

More Details

The agreement comes at a time when lawmakers are scrambling to keep the government funded and follows months of talks that have sought to pair a Republican priority to revive three popular expired business deductions with Democrat goals to expand the child tax credit.

The package would expand access to the child tax credit, gradually increase the amount of the refundable portion of the credit, and peg future increases to the credit to inflation.

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“Fifteen million kids from low-income families will be better off as a result of this plan, and 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,” Senate Finance Committee Chairman Sen. Ron Wyden (D-Ore.) said in a statement.

The proposal also provides a retroactive renewal for 2023 of an expired research and development (R&D) tax deduction, as well as reviving a tax break for interest paid on business loans, while restoring full and immediate expensing for investment in things like equipment and machinery.

“By incentivizing R&D, this plan is also going to promote innovation and help sharpen our economic competitiveness with China and the rest of the world,” Mr. Wyden said.

“This legislation locks in over $600 billion in proven pro-growth, pro-America tax policies with key provisions that support over 21 million jobs,” Mr. Smith said.

Republicans have long sought to restore the three tax cuts, which were introduced by way of President Donald Trump’s signature legislative achievement, the 2017 Tax Cuts and Jobs Act.

Changes for Businesses

The three Trump-era tax breaks that the new package seeks to restore (and that businesses widely praised when first enacted in 2017) began to expire at the end of 2021.

The research and development previsions would let companies get an immediate tax break (rather than over five years) for investments in domestic research and development. The provision delays the date when businesses must begin deducting their domestic research or experimental costs over a five-year period until taxable years beginning in 2026.

Another provision extends the use of earnings before interest, taxes, depreciation, and amortization for calculating adjusted taxable income in determining the limitation on the deduction for business interest. This extension provides flexibility for businesses that are forced to borrow at higher interest rates to meet payroll obligations and invest in expanding their operations.

A third provision extends 100-percent bonus depreciation for qualified property—including equipment, machinery, and vehicles—offering businesses continued favorable tax treatment, encouraging investment.

Business Roundtable CEO Joshua Bolten praised the plan’s restoration of the business tax breaks.

“Business Roundtable strongly supports the bipartisan deal to restore three vital pro-growth tax policies that have expired or are being phased out,” Mr. Bolten said in a statement.

“Reviving immediate research and development expensing, full expensing for purchases of equipment, machinery and technology, and a more sensible business interest deduction would increase domestic investment, bolster U.S. innovation and create American jobs.”

By contrast, Steve Wamhoff, federal policy director at the left-leaning Institute on Taxation and Economic Policy said in an emailed statement to The Epoch Times that he finds the business tax breaks objectionable.

“Child poverty is a problem. Corporations paying too much in taxes is not,” he said. “Unfortunately, many members of Congress have refused to direct resources to help children in poverty unless an equal amount of resources is simultaneously directed towards corporate tax cuts.”

Tax Relief for Families

The proposal aims to increase relief to families with more qualifying children by modifying the calculation of the maximum refundable child tax credit.

It does this by multiplying the earned income by 15 percent and then by the number of qualifying children for tax years 2023–2025. This adjustment enhances support for families with varying income and number of children.

Another provision raises the maximum refundable amount per child from $1,600 to $2,000 in tax years 2023–2025. This proposal addresses the overall limit on the refundable child tax credit, acknowledging the rising costs of living and offering incremental financial relief to families.

The proposal also introduces an inflation adjustment for the child tax credit in 2024–2025 while allowing taxpayers to use the prior year’s earned income for the credit calculation. This ensures the child tax credit keeps pace with inflation and provides flexibility for taxpayers facing income fluctuations.

White House spokesperson Michael Kikukawa told the Epoch Times in an emailed statement that President Biden is “proud” of having pushed to expand the child tax credit in 2021 and “remains committed to fighting for the full expanded” credit.

“We appreciate Chairman Wyden and Chairman Smith’s work toward increasing the Child Tax Credit for millions of families and supporting hundreds of thousands of additional affordable homes, and look forward to reviewing the full details of their agreement,” the spokesperson added.

Emel Akan contributed to this report, which has been updated with a statement from the White House spokesperson.