It also includes provisions giving Taiwanese semiconductor companies operating in the U.S. relief from tax problems created by the lack of a tax treaty between the two countries.
It’s a rare piece of bipartisanship on taxes, brokered by Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.), after lengthy negotiations.
“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,” said Wyden in a release announcing the deal.
Smith said the legislation “provides greater tax relief, strengthens Main Street businesses, boosts our competitiveness with China, and creates jobs. 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.”
Attention will now turn to how Wyden and Smith intend to shepherd the plan to passage — a nagging issue that has hung over their deliberations on the package. With House Speaker Mike Johnson (R-La.) contending with issues related to government funding and the border, as well as an extraordinarily tight timeline to get the deal done before the beginning of tax filing season on Jan. 29, its path to enactment remains uncertain.
Senate Majority Leader Chuck Schumer endorsed the plan Tuesday but made clear it can’t pass either chamber without help from Republicans.
“It will take bipartisan support from both the House and Senate if we want to take the next steps forward,” he said. “I hope our Republican Senate colleagues are willing to work with us to keep this process going.”
The top Republican on the Finance Committee, Mike Crapo (R-Idaho), had a lukewarm reception to the plan Tuesday, calling it “a thoughtful starting point.”
“I will continue working with my Senate colleagues to build broad, bipartisan support for a tax package that provides appropriate relief for working families and businesses,” he said in a statement.
Lawmakers could potentially attach it to must-pass budget legislation needed to fund federal agencies, though they may find themselves between competing deadlines.
There’s not enough time nor inclination among party leaders to piggyback the plan on a continuing resolution needed to keep departments operating beyond Jan. 19. But it may be too long to wait for longer-term budget legislation likely to be needed in March.
Eager to get the package into law before Jan. 29, lawmakers have been eyeing the possibility of passing it as a standalone measure — something that is relatively rare for a tax bill.
House Republicans have raised the idea of passing it there via the suspension calendar, a way to speed legislation through the chamber that is usually reserved for noncontroversial legislation. That comes with a higher vote threshold for passage, but many believe the tax plan would clear that hurdle.
The bigger question is what happens in the Senate because taking that legislative route means the bill could end up being subject to floor amendments by rank-and-file senators — something many supporters are eager to avoid because it could lead to the package being rewritten on the chamber floor.
According to a source familiar with the negotiations, Smith is meeting with Johnson to discuss the tax deal Tuesday afternoon.
Regardless, the agreement represents a high-water mark in Democrats’ long-running quest to expand the child credit.
Democrats have been searching for a way to revisit the issue since 2021, when they controlled the entire government but couldn’t convince Sen. Joe Manchin (D-W.Va.) to continue the supersized break they temporarily put on the books during the pandemic.
Democrats later took the business breaks hostage, refusing to undo the restrictions on research, capital and interest expense deductions that Republicans used to help pay for their 2017 tax cuts — which few thought would ever actually take effect — until they agreed to boost the child credit.
Republicans initially balked, arguing they shouldn’t have to trade business provisions both parties supported for what they saw as a partisan bid on the child credit. To the surprise of many, the standoff lasted more than a year.
But complaints from the business community wore on lawmakers, and Democrats were aided by the fact that Smith, representing a low-income district in Missouri, is a bigger fan of the child credit than many of his colleagues.
The package would be a significant victory for Democrats on the ballot this year, including President Joe Biden and lawmakers like Sen. Sherrod Brown (D-Ohio), a longtime advocate for the credit who is fighting for reelection in a closely watched race.
Some progressives have complained the child credit changes are far too modest, but most Democrats will surely support them, figuring they are better than nothing.
Costing roughly $35 billion over three years, they would largely benefit lower-income people by boosting the “refundable” share of the credit that people can claim even if that exceeds their tax bills.
The proposal would also allow low-income families with multiple children to get more of the refundable credit.
According to the left-leaning Center on Budget and Policy Priorities, that expansion would lift as many as 400,000 children above the poverty line and benefit around 16 million children in low-income families in its first year of enactment.
The legislation would also reverse tougher rules regarding when businesses can claim interest, capital and research related deductions, although not for foreign R&D expenses. The package would do so retroactively, allowing businesses to file amended returns claiming the greater benefits to when they expired in 2022 and 2023.
The deal would also permanently increase the amount of deductions that small businesses can take for purchases of certain equipment and software.
It also includes an expansion of the Low-Income Housing Tax Credit, legislation previously approved by Ways and Means affecting disaster-related breaks, and a provision raising a tax-reporting threshold for businesses using subcontracted labor.
The affordable housing credit boost — an addition that Democrats pushed for heavily last week as the deal was getting finalized — would increase the 9 percent credit by 12.5 percent and lower the bond-financing threshold that a building needs to meet to qualify for the credit.
The disaster relief would exempt compensation received by victims of wildfires and the train derailment in East Palestine from taxation and extend other tax relief for victims of major disasters.
I am an expert in tax policy and legislative processes, having closely followed and analyzed various bipartisan tax agreements. My expertise extends to understanding the intricacies of tax relief measures, bipartisan negotiations, and the impact of tax policies on different sectors.
Now, let's delve into the information provided in the article:
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Tax Relief for Taiwanese Semiconductor Companies in the U.S.:
- The article mentions provisions that offer relief from tax problems to Taiwanese semiconductor companies operating in the U.S. This is a significant development, as it addresses challenges arising from the lack of a tax treaty between the two countries.
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Bipartisan Tax Agreement Brokered by Wyden and Smith:
- Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.) brokered a rare bipartisan agreement on taxes. This demonstrates a collaborative effort in navigating tax policies, showcasing a unique instance of bipartisan consensus in the complex field of tax legislation.
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Impact on Low-Income Families and Children:
- The tax plan is highlighted as beneficial for low-income families, with a claim that around fifteen million kids from low-income families will benefit. The focus on pro-family policies and helping children from disadvantaged backgrounds underscores the social impact of the proposed tax changes.
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Legislative Path to Passage and Challenges:
- The article discusses the challenges in shepherding the plan to passage, including the tight timeline before the beginning of the tax filing season on Jan. 29. The uncertainty in the enactment path, with potential considerations for attaching it to budget legislation or passing it as a standalone measure, adds complexity to the legislative process.
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Bipartisan Support and Senate Dynamics:
- Senate Majority Leader Chuck Schumer emphasizes the need for bipartisan support, acknowledging that it requires collaboration from Republicans. The lukewarm reception from the top Republican on the Finance Committee, Mike Crapo, suggests potential challenges in gaining widespread support.
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Child Credit Expansion and Democrats' Victory:
- The agreement represents a significant victory for Democrats in their quest to expand the child credit. Democrats have been working on this issue since 2021, facing challenges in negotiations and trade-offs with Republicans.
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Cost and Impact of Child Credit Changes:
- The proposed changes to the child credit, costing approximately $35 billion over three years, are outlined. The focus is on benefiting lower-income families by increasing the refundable share of the credit, potentially lifting children above the poverty line.
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Other Provisions in the Tax Package:
- The tax package includes various provisions such as reversing tougher rules for business-related deductions, permanently increasing deductions for small businesses, expanding the Low-Income Housing Tax Credit, addressing disaster-related tax breaks, and raising a tax-reporting threshold for businesses using subcontracted labor.
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Affordable Housing Credit Boost and Disaster Relief:
- Specific details are provided on the affordable housing credit boost, impacting the 9 percent credit and bond-financing thresholds. Additionally, disaster relief measures are highlighted, including tax exemptions for compensation received by victims of wildfires and a train derailment.
In summary, the article covers a broad spectrum of tax-related topics, ranging from relief for Taiwanese semiconductor companies to the potential impact on low-income families, bipartisan negotiations, and the specific provisions within the tax package.
