Tax Breaks for Kids, Companies Are Suddenly Brewing in Congress

Progressive Democrats are staunchly opposed to addressing the corporate-tax breaks, which would preserve some portions of President Donald Trump’s 2017 tax reductions. And GOP members say more child-tax credit payments would fuel inflation and lead to abuse and waste.

But members of both parties also point to real-world consequences if all the tax issues are left untouched. Democrats warn that poverty could skyrocket, and Republicans see the potential for decreased business innovation that puts the US at a disadvantage to other nations.

Business Concern

Raytheon Technologies Corp. last month warned about a $2 billion hit to its expected free cash flow based on R&D deduction not getting extended.

“If you cut your R&D investments and you take out the riskiest R&D that you’re doing — which sometimes has the highest payoff — once you start to make those cuts, it’s very hard in the future to reverse course,” said Catherine Schultz, the vice president for tax policy at the Business Roundtable.

Democrats have been highlighting Census Bureau data showing the child poverty rate was nearly cut in half — to 5.2% from 9.7% — in 2021 when the policy was in effect. Millions of children are at risk of slipping back without the policy, they say.

“I’ll put it this way, no more tax breaks for big corporations and the wealthy unless the child tax credit’s with it. I’ll lay down in front of a bulldozer on this,” Senator Sherrod Brown, an Ohio Democrat, said at an event last month.

Billions at Stake

All told, there are roughly $45 billion worth of business-related tax breaks that Republicans are seeking to extend for a period of four years. Democrats have pushed publicly for a full extension of last year’s child-tax benefit, which would cost more than $100 billion per year, but privately have been looking at options on how to pare that back in order to cut a deal, according to a person familiar with the matter.

The politics of any deal aren’t certain until the results of the midterm election are known. If Republicans sweep both the House and Senate, GOP lawmakers are likely going to be hesitant to compromise on any legislation before they take over Congress in January — instead preferring to defer any action until they are in control.

Janice Mays, a former Ways and Means Committee aide, said willingness for the two sides to work together in December depends on how they feel after the election.

It’s likely there are more members of the current Congress who are open to bipartisan deals than there will be in the next one, said Mays, who now works for PricewaterhouseCoopers. That offers an incentive for pragmatists to compromise now.

“The decision of whether legislation can be decided at all on these issues is going to be more of a political than a substantive decision,” she said. “That mood of the moment can just be everything.”

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