Congress is about to do the amazing: Invest in kids
Help kids, help companies and pay for it all by reducing tax fraud. That’s the terrific win-win-win deal lawmakers are expected to announce imminently, according to a source involved in congressional negotiations.
For more than a year now, legislators have been hashing out a trade. Republicans wanted to renew a slew of corporate tax breaks that had recently expired; in exchange, Democrats demanded an expansion of a tax credit to slash child poverty. Kids deserved at least as much as corporations, Democrats argued.
After seemingly interminable stagnation, something amazing happened over the holiday weekend: The haggling worked.
Sen. Ron Wyden (D-Ore.) and Rep. Jason T. Smith (R-Mo.), the leaders of their respective chambers’ tax-writing committees, are expected to announce a deal soon. It will include roughly $33 billion in business tax breaks and about the same amount in expansions to the child tax credit, plus about $13 billion for some other smaller measures (related to housing, natural disasters, etc.).
The best news is that the changes to the child tax credit are estimated to benefit 16 million low-income kids; in the first year, it would lift 400,000 out of poverty entirely and make another 3 million less poor (i.e., raising their incomes closer to the poverty line), the Center on Budget and Policy Priorities estimates.
This is by no means a done deal. Some fringier members of the GOP conference might object to legislation that includes any Democratic priorities. Some Democratic lawmakers, likewise, are expected to complain that the child tax credit expansion would not be as generous as a similar, temporary measure from 2021.
But it’s a good deal, both for these lawmakers and America.
The corporate tax breaks – such as greater incentives for domestic R&D and faster depreciation of certain kinds of capital investments – can prove to business leaders that Republicans can still deliver on key economic priorities despite their populist, anti-corporate mudslinging.
And while the child tax credit expansion may not include all the things that child advocates want, it does a lot of good for a lot of people.
Critically, it aims nearly all of its fiscal firepower at the families that need it most: those below or near the poverty line who don’t get the full child tax credit today because of the way the tax code works.
For instance, low-earning families often cannot receive more than a tiny child tax credit (if any) for any children beyond their firstborn. Meanwhile, higher-earners get cash back for every kid.
The new agreement fixes this, allowing poor families with multiple kids to claim the same benefit for each of their children.
Among the other changes: The child tax credit would increase to keep up with inflation. And families temporarily undergoing economic hardship could also choose between the current year and the prior one when calculating their credit.
For instance, imagine a working mom who made enough money last year to qualify for the full credit for her preschooler. But then her earnings dropped this year because she took time out of work to care for a sick relative or maybe a newborn. Under the new proposal, her earnings from last year could be used to determine her family’s eligibility for the benefit.
In other words, the agreement still satisfies Republicans’ preference for something akin to a minimum work requirement but provides more flexibility for how that requirement can be met.
How much would this package cost? Even more good news: possibly nothing.
As part of the deal, lawmakers are choosing to end a different business tax break, known as the Employee Retention Credit, which seems to have been largely fraudulently claimed anyway. Hill sources say that savings from sunsetting the program should fully offset the costs of the other measures.
This is significant beyond just the details of the deal itself. It would establish a precedent that lawmakers should be paying for new tax cuts, something Republicans in particular are not always eager to do.
This would be a relevant principle for 2025, when huge chunks of the tax code expire and Congress begins haggling over how to restructure it.
The deal would represent a massive investment in both the nation’s human capital and its physical capital. And while each party has disproportionately cared more about one item in the deal or the other, quite a few lawmakers across both parties have voiced support for everything in that bundle.
In a normal political environment, this would be unremarkable. Given Congress’s dysfunction of late, the idea of lawmakers settling on a deal they all want is a minor miracle.
It’s never too late for lawmakers to get their act together, and begin, you know, making good laws.
Catherine Rampell is a columnist for The Washington Post.