Congress Surprises with Bipartisan Compromise on Tax Deal
Amid continuing disfunction in Congress, it was a pleasant surprise to hear that the top tax-writing committees had reached a compromise that seems to address concerns that provide discernible, practical help.
Under the deal, the government will reinstate child tax credit policies that, until they expired, had proved successful in lifting families from poverty and renewed some small business deductions removed as part of the 2017 corporate tax rate legislation.
It also increases the low-income housing tax credit to incent creation of upwards of 200,000 affordable homes, and provides some protection against double taxation for semiconductor producers with Taiwanese connections.
Not only was there a bipartisan recognition of some need for compromise, in this case all of it sounds within reason without the usual table-pounding to attach crazy, partisan policy changes over the implementation of benefits. It sounded surprisingly like the kind of governing we could get used to expecting from a federal government.
Of course, this was an agreement among committee chairs in Congress and not final approval. Approval remains hanging as the Congress apparently has decided to tackle a budget continuation bill this week to forestall government shutdown and provide time to pass a dozen budget-required bills.
Compromise Across the Aisle
Amazingly, Republicans and Democrats had only nice things to say about one another in pressing for the agreed-upon approach as benefitting Americans in general.
The child-care tax credit would increase the maximum credit per child to $2,000 from $1,600 through 2025.
The restoration of business deductions would boost research and development, interest payments and capital investments. It would raise the amount of money that small businesses can write off.
To pay for the changes, the tax-writing committees plan to eliminate an employee retention tax credit worth $80 billion over 10 years that had been put in place during the COVID pandemic. It has been criticized as a source of fraud.
Obviously, arguing about taxes and credits is something politicians would like to avoid in an election year. But this approach was drawing a continuing sense that there was something for every politically sensitive group to promote — a successful compromise by any other name.
The main provisions of the deal extend only as far as the end of 2025, when major portions of the U.S. tax code put in place by the 2017 tax law are scheduled to revert to their previous levels. Those include changes in tax rates for individuals and households, the level of the standard deduction, the cap on state and local tax deductions, the limitation on personal exemptions and the repeal of the alternative minimum tax among others.
Announcement of the tax deal came jointly from the Republican-led Ways and Means Committee in the House and the Democratic-led Finance Committee in the Senate, capturing a rare moment of bipartisan harmony.
Aligning Support for a Deal
The child tax credit, which has been supported more by Democrats, is based on the number of children in a household and was credited with reducing poverty rates while it was in effect.
The business tax rollback, promoted more by Republicans, quickly drew welcome support from a business community that wants to revive research and development, though studies have not shown that the full credit has been used for such ends.
The low-income house tax credit is intended to allow states to allocate incentives for affordable housing and seemed to have support from both parties.
The semiconductor tax arrangement was meant to prevent double taxation for “businesses and workers with a footprint in both the United States and Taiwan” as the U.S. seeks to bring that industry back to this country.
Also under this deal, victims of wildfires and the Norfolk Southern derailment in East Palestine, Ohio, would receive some tax relief, with any disaster relief payments not counting toward their taxable income.
Hey, maybe we could learn something from a successful compromise.