The House passed legislation Wednesday evening reviving a number of tax breaks, including the enhanced Child Tax Credit, the ability to fully deduct research and development expenses in the first year, 100% bonus depreciation, disaster tax relief, improvements in the Low Income Housing Tax Credit, interest expensing and a tax agreement with Taiwan. The bill now moves over to the Senate, where passage remains uncertain.
House Speaker Mike Johnson, R-Louisiana, allowed a vote on the $78 billion bill, known as the
Child Tax Credit
Democrats had hoped for a more robust version of the enhanced Child Tax Credit like the one included in American Rescue Plan Act of 2021, but it promises to help low-income families dealing with inflation. "This package remains flawed in many ways, and I've been disappointed by the lack of Republican willingness to make improvements that will better support families most in need," said Rep. Suzan DelBene, D-Washington, in a statement. "However, I am not one to let the perfect be the enemy of the good. This package will provide greater relief to families, incentives to build more affordable housing, and reduce double taxation on American and Taiwanese businesses and workers."
An advocacy group, the National Parents Union, said the legislation would still be a help.
"Tonight, the House of Representatives passed a bipartisan tax package with American families in mind," said Ariel Taylor Smith, senior director of the NPU Center for Policy & Action, in a statement. "The inclusion of an expanded Child Tax Credit in the Tax Relief for American Families and Workers Act of 2024 will provide relief for millions of hard-working families across the country."
The bill would index the Child Tax Credit to inflation, while keeping in place work requirements. It would incrementally increase the refundable portion of the tax credit for 2023, 2024 and 2025. There is flexibility for taxpayers to use either current- or prior-year income to calculate the Child Tax Credit in 2024 or 2025.
"Today the House garnered enough votes to pass bipartisan tax legislation that pairs business breaks with an expansion of the Child Tax Credit," said Rema Serafi, vice chair of tax at KPMG LLP, in a statement. "Now, the big question that remains is what the Senate will do with the bill. While there is no guarantee yet that it will become law, companies are holding their breath. If passed, the bill would be retroactive two-plus years and would likely result in many having to amend tax returns or quickly determine how to account for the bill."
It will be up to the Senate to pass the bill, but the measure has already attracted some opposition in the narrowly divided chamber.
"It's pretty much now or never for the Tax Relief for American Families and Workers Act of 2024," said Kasey Pittman, tax policy director of Baker Tilly's Washington Tax Council, in a statement. "Many provisions contained in this bill are retroactive, affecting 2023 and, in some cases, 2022 tax years, which gives the Senate a very tight window to pass this legislation in its current form."
"Any significant delay would make the implementation extremely difficult," Pittman added. "While the resounding bipartisan vote in the House certainly puts pressure on the Senate to pass the compromise quickly, passage remains far from certain. The changes being made to the Child Tax Credit are relatively modest; however, they are expected to have a substantial impact on low-income families, who may see an increase in their refunds. The 'trio' of business provisions that would alter the treatment of business interest expense, bonus depreciation and research and experimental costs are significant for business owners. The business interest provision will provide some relief to companies who have experienced not only reduced deductibility under current law, but a rapid increase in interest rates over the last couple years."
Affordable housing
The package includes measures pushed by advocates to address the shortage of affordable housing, restoring a 12.5% allocation increase to the Low Income Housing Tax Credit that expired at the end of 2021, and reducing from 50% to 30% the amount of private activity bond financing required to access the 4% LIHTC.
"We are encouraged by the decisive bipartisan support in the House for tax legislation that would make the most meaningful dent in our nation's affordable housing crisis in over two decades," said Emily Cadik, CEO of the Affordable Housing Tax Credit Coalition, in a statement. "The Low-Income Housing Tax Credit provisions in the Tax Relief for American Families and Workers Act of 2024 would finance over 200,000 affordable homes that are shovel ready, and we encourage the Senate to move quickly to advance this bipartisan legislation."
If the bill passes in the narrowly divided Senate, the IRS will need to implement measures like the expanded Child Tax Credit quickly.
"The IRS has confirmed that it will be able to process changes to people's tax refunds quickly, in approximately six weeks," said Sen. Ron Wyden, D-Oregon, chairman of the Senate Finance Committee, in a statement. "Taxpayers who send their returns to the IRS early in filing season will not need to file amended returns — the IRS will send them their additional refund automatically. That's due to improvements to its back-end systems funded by The Inflation Reduction Act. That's great news because this is a rare opportunity in a deeply divided Congress to help a lot of families and kids who are struggling to get by, and Democrats don't want those kids to have to wait any longer."
He pointed optimistically to the strong vote in the House, which bodes well for the action moving over to the Senate. He plans to work with Senate Majority Leader Chuck Schumer, D-New York, and other Senate colleagues on both sides of the aisle to get the passed.
Wyden worked with Rep. Jason Smith, R-Missouri, who chairs the tax-writing House Ways and Means Committee, on the package.
"The Tax Relief for American Families and Workers Act is pro-growth, pro-jobs, and pro-America," Smith said Wednesday afternoon. "This legislation locks in $600 billion in pro-growth tax policies by restoring three key provisions from President Trump's successful 2017 tax reform that have a proven record of creating millions of jobs, raising workers' wages, and sparking more investment and economic growth here at home. This bill restores full R&D expensing, interest deductibility and 100% expensing. Each of these policies will help American businesses grow, create jobs and sharpen their competitive advantage against China."
He predicted the bill would create over $70 billion in new R&D investment and over 900,000 new jobs; increase small business investment by $400 billion, and generate $58 billion in additional take-home pay for American workers.
He noted that the Child Tax Credit provisions reflect the same structure established by the Tax Cuts and Jobs Act of 2017. "We maintain work requirements while enhancing the benefit to support families crushed by today's inflation and remove the penalty for families with multiple children. It's both pro-work and pro-family," said Smith. "The reforms include meaningful tax relief for those affected by natural and man-made disasters and encourage more construction of safe, affordable housing."
The cost of the bill is paid for by ending the fraud-plagued Employee Retention Credit on Jan. 31. "At the end of the day, we are replacing bad tax policy with good tax policy by cutting off funding for the employee retention tax credit — a COVID-era program that costs six times its original amount and is so riddled with fraud, that the IRS put it on its "dirty dozen" list of the worst scams in America," said Smith. "This will save American taxpayers over $75 billion."
Business tax breaks
The bill enjoyed wide support from business groups and passage in the House was praised by groups like the National Retail Federation and the National Association of Manufacturers.
The bill would allow businesses of all sizes to immediately deduct the cost of their U.S.-based R&D investments instead of over five years. It also would restore full and immediate expensing for investments in machines, equipment and vehicles. It would increase the amount of investment that a small business can immediately write off to $1.29 million, an increase above the $1 million cap enacted in 2017. It would adjust the reporting threshold for businesses that use subcontract labor from $600 to $1,000 and index for inflation, the first update to the threshold since the 1950s. It would also remove the current double taxation structure for businesses and workers with a footprint in both the United States and Taiwan. The bill would also provide disaster tax relief for recent hurricanes, flooding, wildfires, and the Ohio rail disaster.
"The reinstated full expensing for equipment and machinery purchases will enable retailers to modernize their infrastructure, adapt to changing consumer trends and stay competitive in an evolving market landscape," said NRF senior vice president of government relations David French in a statement. "The more sensible business interest deduction will ease financial burdens on retailers and will create a more resilient retail ecosystem."
Groups will be lobbying the Senate to push the bill over the finish line. "Manufacturers are now counting on the Senate to act quickly to restore these provisions that are absolutely critical to strengthening America's competitiveness and growth of manufacturing in America," said National Association of Manufacturers president and CEO Jay Timmons in a statement. "We cannot afford to wait. The cost of delay or inaction will be measured in lost jobs and slower wage growth, along with investment ceded to other countries. Passing this legislation, however, will ensure that small manufacturers, who are the backbone of communities and foundation of America's supply chain, can continue driving our nation forward."
