The House approved a bipartisan tax package totaling $78 billion, which includes a temporary expansion of the child tax credit and the restoration of various business tax benefits.
This legislation will now proceed to the Senate, where House Speaker Mike Johnson, despite overseeing a narrow majority, secured rare bipartisan support for the bill.
Landmark Child Tax Credit Bill
The vote results were 357 to 70, with 188 Democrats and 169 Republicans voting in favor, and 23 Democrats and 47 Republicans opposing the bill.
The proposed deal is set to offer a larger credit in the initial year to low-income families, benefiting approximately 16 million children, or over 80% of those currently not receiving the full credit due to their families’ limited earnings.
The Center on Budget and Policy Priorities estimates that the package could lift at least half a million children out of poverty, and improve the financial situation for around 5 million more children who would otherwise remain below the poverty line by 2025.
However, the bill has faced resistance from moderates, particularly those from New York, who are dissatisfied with the absence of an increase in the federal deduction cap for state and local taxes.
Despite these challenges, the deal is not expected to have a significant impact on the federal budget, reducing revenues by less than $400 million over the next decade.
The key focus of the bill is on enhancing the child tax credit, with adjustments aimed at benefiting lower-income families.
These modifications include increasing the maximum refundable credit for households with little or no income taxes, providing the same credit for each child in low-income families, and allowing families to use earnings from either the current or prior year.
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Child Tax Credit: 2023-2025 Evolution
The child tax credit adjustments will be in effect for three tax years, from 2023 through 2025, and the credit is set to be adjusted for inflation starting in 2024.
While some Republicans express concerns about potential disincentives to work and the risk of undocumented immigrants claiming the credit, House Ways and Means Chairman Jason Smith emphasizes the maintenance of the minimum earnings threshold and the requirement for children to have Social Security numbers.
Additionally, the tax package temporarily restores various business tax benefits that had recently ended or begun to phase out.
These benefits, initially part of the 2017 Tax Cuts and Jobs Act, include the immediate deduction of the cost of US-based research and experimentation investments, the restoration of the immediate deduction of 100% of investment in machinery and equipment, and relaxed limits on the deductibility of interest expenses. These business tax benefits will run through 2025.
Furthermore, the legislation addresses relief for individuals affected by disasters, such as hurricanes, flooding, wildfires, and the Ohio train derailment in East Palestine last year.
It also enhances the Low-Income Housing Tax Credit to increase the supply of low-income housing and accelerates the deadline for filing backdated claims for the Employee Retention Tax Credit, saving taxpayers over $78 billion, according to the Joint Committee on Taxation. The new deadline for filing backdated claims is January 31, 2024, instead of April 15, 2025.
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