Lawmakers Strike Deal on Expanded Child Tax Credit, but Face Long Odds
Lawmakers Strike Deal on Expanded Child Tax Credit, but Face Long Odds

Top Democrats and Republicans in Congress on Tuesday released a $78 billion compromise they have reached to expand the child tax credit and restore three popular expired business tax breaks, but the package faces a challenging road to enactment in an election year.

The plan includes $33 billion to partly extend a major expansion of the child tax credit that was initially beefed up for one year as part of the sweeping 2021 pandemic aid law, and another $33 billion to reinstate a set of expired business tax benefits related to research, business and capital deductions. Both would last through 2025.

It would also include an increase of a tax credit to encourage the development of low-income housing, tax relief for disaster victims and tax breaks for Taiwanese workers and companies operating in the United States. The package would be financed by reining in the employee retention tax credit, a pandemic-era program to encourage employers to keep workers on payroll that has become a hotbed of abuse.

The deal represents a rare bipartisan agreement spanning both chambers, brokered by the two top tax writers in Congress: Representative Jason Smith, Republican of Missouri and the chairman of the Ways and Means Committee, and Senator Ron Wyden, Democrat of Oregon and the chairman of the Finance Committee. They have led an intensive round of discussions aimed at striking a compromise and pushing it into law in time for the start of tax filing season this month.

But the package faces steep obstacles in a Congress laboring to tackle even the basic work of funding the government.

“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,” Mr. Wyden said in a joint statement on Tuesday with Mr. Smith. “My goal remains to get this passed in time for families and businesses to benefit in this upcoming tax filing season, and I’m going to pull out all the stops to get that done.”

Mr. Smith championed what he said would be “over $600 billion in proven pro-growth, pro-America tax policies with key provisions that support over 21 million jobs.”

Proponents expressed optimism about the plan’s chances, noting how unlikely it had seemed for a bipartisan tax package to come together.

“It’s — I don’t want to say a legislative miracle, but it almost is,” said Senator Sherrod Brown, Democrat of Ohio and a leading proponent of the child tax credit. “Six months ago, there was no chance of the child tax credit.”

Still, major hurdles remain. Congress remains primarily focused on funding the government before a shutdown deadline on Friday, and fractious House Republicans continue to put Speaker Mike Johnson of Louisiana in a bind.

The deal also faces resistance from many Senate Republicans, and House Democrats have argued that it should do more to expand the child tax credit. Mr. Smith and Mr. Wyden’s top tax-writing counterparts — Representative Richard E. Neal of Massachusetts, the senior Democrat on the Ways and Means Committee, and Senator Michael D. Crapo of Idaho, the senior Republican on the Finance Committee — notably have not endorsed the package.

In a statement on Tuesday, Mr. Crapo called it “a thoughtful starting point.”

The White House was also noncommittal, with a spokesman suggesting that President Biden would prefer a broader expansion of the child tax credit.

“The president is proud that the expanded child tax credit he fought for and signed into law cut child poverty nearly in half in 2021 and provided breathing room for tens of millions of families with children,” said the spokesman, Michael Kikukawa. “He remains committed to fighting for the full expanded child tax credit.”

The effort is a test of whether Congress can pass significant legislation during an election year. Beyond funding the government, lawmakers have been largely focused on the politically contentious negotiations over new immigration policy in exchange for additional military aid to Ukraine.

A new law to expand the child tax credit would be a rare piece of substantive legislation and a political victory for President Biden and Democrats, even as Republicans could also promote the business tax breaks and point to the deal as evidence that they are able to govern despite a year of remarkable chaos and a lack of productivity.

“Moving into an election cycle, I think it just becomes considerably more difficult,” Mr. Neal, who also noted both parties’ slim margins in each chamber, said last week. “But I think many of us could figure out how to get there.”

The expanded child tax credit cut child poverty rates nearly in half in 2021 and cost an estimated $105.1 billion. It lapsed in 2022, reducing the amount that families could claim per child to levels set by former President Donald J. Trump’s tax cuts in 2017 and limiting how much of the credit lower-income families could receive.

The deal announced on Tuesday would gradually raise the cap on how much the lowest-income families could receive to match the amount for higher-income families. It would also make the credit more accessible for families with multiple children, allow parents to use their previous year’s earnings to claim a larger credit and automatically adjust for inflation beginning in the current tax year.

Several House Democrats, including Mr. Neal, spent last week pushing for more on the child tax credit — including restoring monthly checks for recipients instead of the current annual payments — and questioning whether the deal truly offered parity for families and businesses, as advertised.

“Millions of children would be left in preventable poverty because of a policy choice, all while giant corporations who do not pay any taxes get a massive tax break,” Representative Rosa DeLauro of Connecticut, the top Democrat on the Appropriations Committee, said in a statement last week. “It is time to get to work moving policy that will actually improve their lives, not watered-down policy for the sake of making a deal.”

Senate Republicans have expressed skepticism that a deal could become law, highlighting outstanding issues including identifying a legislative vehicle for the package to become law. House Republicans have toiled over the past year to bring up far more minor bills, with a restive right wing emboldened to defy their leaders and block legislation to register their grievances.

“I think the chances of getting it done, at least during the January period, is pretty nil,” Senator Charles E. Grassley, Republican of Iowa, said on Thursday. He noted that House Republican leaders would not want to attach the package to any spending bills that already face dissent from the far right.

Senator John Thune of South Dakota, the No. 2 Republican, also cautioned last week that any bolstering of the child tax credit would have to be “reasonable” and come with a “good balance” of business tax breaks.

“Those are really hard issues,” he said of expanding the child tax credit. “You’re not going to get Republicans to agree with a lot of that.”

Tucked into the plan are Republican-written bills to exempt from taxes any compensation received for wildfire disasters or the train derailment in East Palestine, Ohio, and to provide treaty-like tax advantages to Taiwanese individuals and firms.

The political dynamics of an election year have clouded the package’s prospects.

Mr. Brown of Ohio, for instance, faces a tough re-election race in November, with Republicans viewing his seat as a prime pickup opportunity that could shift control of the Senate in their favor. Increasing the child tax credit would be a legislative and political victory for Mr. Brown, who has made it one of his signature issues.

Still, some lawmakers said the bipartisan deal suggested that, at least in this case, electoral politics might be driving members of Congress toward doing something.

“What you’re seeing here in terms of politics is both parties — instead of failing and then pointing fingers at the other side and blaming the other side for failing — I think both parties have concluded that the American people would rather see progress, and they’d rather see the two parties working together,” Senator Michael Bennet, Democrat of Colorado, said last week. “Whether there’s a political lens on that, I don’t know. But I suspect that is a reaction to people knowing that folks at home are sick and tired of the chaos.”

Alan Rappeport contributed reporting.