6 min read

Breaking down the bipartisan tax deal

A bipartisan deal could lift 400,000 children out of poverty and create 200,000 new affordable housing units.
Breaking down the bipartisan tax deal
Photo by Kelly Sikkema / Unsplash

Good morning! It’s Wednesday, January 31, 2024. Election Day is 279 days away. If this newsletter was forwarded to you, subscribe here. If you want to contribute to support my work, donate here.

The House is poised to vote today on the Tax Relief for American Families and Workers Act, the bipartisan deal to expand the Child Tax Credit (CTC) and extend a trio of corporate tax breaks.

The bill soared through the House Ways and Means Committee, which approved it in a lopsided 40-3 vote, but faced speed bumps as soon as it reached the floor. There are three main groups that have been threatening its passage:

  • New York Republicans who were hoping to add a provision increasing the federal State and Local Tax (SALT) deduction. The SALT deduction allows taxpayers to deduct the money they pay in state and local taxes from their federal tax bill. In 2017, the Trump tax package introduced a $10,000 cap on the deduction, affecting citizens in New York and other high-tax states. A group of New York moderates have been calling for the bipartisan tax bill to raise the SALT cap to $20,000, even holding up a rule on the House floor Tuesday to make their point.
  • Conservative Republicans who are pushing for an amendment that will ensure illegal migrants are unable to benefit from the CTC expansion. The bill’s authors have pushed back on those concerns, noting that the measure requires beneficiaries to list their Social Security number, using the same language as the 2017 tax bill.
  • Progressive Democrats who are unhappy with the terms of the deal, hoping for an expansion of the CTC akin to the larger one included in the 2021 stimulus package.

None of these groups are likely to get their way, however, as the bill is set to be voted on under “suspension of the rules,” which does not allow for any amendments. The procedural tool allows for bills to be fast-tracked on the House floor, as long as they receive two-thirds support.

Traditionally, “suspension of the rules” has been used for lower-profile, uncontroversial measures — but Republican leaders have repeatedly deployed it this Congress for major votes on government funding and other matters. Under the chaotic GOP majority, “suspension of the rules” has been the easiest way to usher bipartisan legislation to passage. 218 is the new 290.

Based on the sweeping vote in committee, the bipartisan bill is likely to meet the two-thirds threshold today, even if members of the frustrated groups vote “no.”

Ahead of today’s vote, here’s a refresher on the tax deal’s provisions:

Expands the refundability of the Child Tax Credit. Tax credits are considered “refundable” if individuals who don’t owe federal income tax can still receive the credit. The CTC is partially refundable, meaning low-income families can receive up to $1,600, out of the full $2,000 credit.

  • This deal would expand how much of the credit low-income families can receive, increasing to $1,800 for tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025. Meanwhile, the credit itself would eventually become more generous for all beneficiaries, increasing along with inflation in tax years 2024 and 2025.
  • That means the main beneficiaries of the bipartisan deal will be families who don’t currently earn enough to receive the CTC in full. According to an estimate by the left-leaning Center on Budget and Policy Priorities, around 16 million families would benefit from the expansion, which would lift up to 400,000 children above the poverty line in its first year.

Extends three corporate tax breaks. These changes include deductions for research costs (which would be able to be written off in one year, rather than having to spread out the deduction over five years, as currently required); for the cost of equipment and other “short-lived” capital investments; and for interest expenses.

  • All three tax breaks had been peeled back by the 2017 tax bill, in order to offset the costs of the measure. Under the 2017 package, they had either already expired or were poised to soon do so; now, they will be extended through 2025, which is also how long the CTC provisions will last under the deal.
  • Companies with large capital and domestic research costs will benefit, such as Apple, Amazon, Microsoft, and Boeing.

Boosts affordable housing. The deal will increase the Low-Income Housing Tax Credit (LIHTC), which provides a tax incentive to encourage developers to construct affordable housing units. Per the National Housing Law Project, the LIHTC program is the “largest source of new affordable housing” in the country.

  • The bill up for a vote today would increase the LIHTC by 12.5% through 2025. According to an estimate by the consulting firm Novogradac, the increase will spur the construction of more than 200,000 affordable housing units over the next two years.

Ends “double taxation” with Taiwan. Currently, Taiwanese companies doing business in the U.S. and American companies doing business in Taiwan are both taxed in both places, discouraging investment in each other’s economies. The U.S. has tax treaties in place with many countries to avoid this “double taxation,” but can’t sign one with Taiwan since the two governments lack official diplomatic ties.

  • The deal will effectively create a tax treaty with Taiwan, which will likely lead to more Taiwanese investment in the U.S. semiconductor industry. The provision will only go into effect when Taiwan provides the same benefits to American companies.

Provides tax relief for communities hit by disaster. In general, Americans must pay taxes on any “gross income” — no matter where that income came from. However, disaster relief payments are typically excluded from this sort of taxable income.

  • The tax bill will clarify that disaster payments made after wildfires and after last year’s East Palestine train derailment do not count as taxable income.

Repeals a pandemic-era tax benefit. Finally, the deal would end the Employee Retention Credit (ERC), a Covid-era tax credit offered to companies that could show they kept their employees on the payroll during the pandemic. The ERC quickly became a “magnet for fraud,” sparking thousands of bogus claims.

  • Per the Joint Committee on Taxation, the $79 billion saved by ending the ERC will be enough to fully offset the costs incurred by the other tax changes in the package. However, the Committee for a Responsible Federal Budget has warned that the deal could carry a $650 billion price tag if extended past 2025 without an additional offset.

More news to know.

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Bush: Justice Department investigating Democratic Rep. Cori Bush over alleged misuse of campaign funds / AP

Border deal: GOP senators fear border deal may already be doomed / Politico

The day ahead.

All times Eastern.

White House: President Biden and Vice President Harris will have lunch together this afternoon. Harris will also host a Lunar New Year reception later tonight.

Congress: The Senate will vote on confirmation of two district judge nominees, plus an EPA nominee. The House is expected to vote on the Tax Relief for American Families and Workers Act, the bipartisan tax deal.

Committees: The Senate Judiciary Committee will hold a hearing at 10 a.m. on online child safety, featuring testimony from CEOs Linda Yaccarino (X), Shou Zi Chew (TikTok), Evan Spiegel (Snap), Mark Zuckerberg (Meta), and Jason Citron (Discord).

Federal Reserve: Fed chair Jerome Powell will hold a press conference at 2:30 p.m., where he is expected to announce the central bank will keep interest rates steady for the fourth straight time.

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