Conservatives call for big business tax cuts while White House backs child tax credit

Tax cuts for big business are once again facing off against the expanded child tax credit (CTC) in the yearly December fight to make last-minute changes to the tax code.

Republicans want to see deductions extended for research and development costs, fixed capital investments such as machinery and equipment, as well as interest expense.

The White House is leaving open the possibility for a deal, saying these cuts would be possible if a beefed-up CTC also makes it into law.

“The President strongly believes that any bill that cuts taxes for big corporations must cut taxes for working people and families with children — especially to reduce child poverty,” a White House official told The Hill on Friday, maintaining the position the White House had last year when a similar deal was in the works.

“If Congress is going to bring back tax cuts for big corporations, it should restore the Child Tax Credit that helped cut child poverty nearly in half,” the official said.

On Wednesday, House Republicans led by Rudy Yakym (R-Ind.) sent a letter to Speaker Mike Johnson (R-La.) urging the business tax cuts “in any upcoming package by the end of the year.”

“We support extending: immediate R&D expensing, full capital expensing, and a pro-growth interest deductibility rule,” the members of Congress wrote.

The members said that while they don’t sit on the Ways and Means Committee, which is Congress’s chief tax-writing committee, they are in support of the proposals of its chair, Jason Smith (R-Mo.). A top Republican priority has been to extend many cuts in the 2017 Tax Cuts and Jobs Act (TCJA), the bulk of which are set to expire in 2025.

On Friday, a Ways and Means Committee Republican aide told The Hill that no end-of-year deal on tax extenders has yet been reached but that the committee is now in “wait-and-see mode.”

If a year-end deal on taxes is reached, it isn’t immediately clear how it would be paid for. Both the Republican and Democratic tax priorities are expensive.

Permanently extending the three major business provisions desired by Republicans would reduce federal tax revenue by about $724 billion over the next decade before adjusting for changes to production levels, analysts with the Tax Foundation, a Washington think tank, said in a write-up.

“Most of the cost, about $427 billion, is due to the extension of 100-percent bonus depreciation,” they wrote.

The Congressional Budget Office estimated that making the 2021 CTC permanent could cost as much as $1.597 trillion over 10 years. 

“Prior [Joint Committee on Taxation] estimates suggest the TCJA changes to the child credit would cost about $85 billion a year if permanently extended, while the [American Rescue Plan Act] changes could cost about $105 billion per year if permanently extended,” the Congressional Research Service wrote in an analysis published last year, when a similar tax credit deal was being debated.

The scope of such a deal, should it materialize, is likely shorter and smaller than a decade-long extension and may only cover the next year, after which major changes to the tax code, due to expirations built into the TCJA, will take effect.

Three sources told The Hill that the ballpark figure for the prospective deal is around $100 billion.

The 2021 expanded CTC lifted millions of American children out of poverty.

“[There were] 3.3 to 3.7 million more children in poverty in [the] months after [the] child tax credit expiration,” researchers with Columbia University wrote in a 2022 report on the efficacy of the expanded CTC.

“Once the monthly payments expired, households’ ability to meet their basic needs worsened. Households struggling the most in 2022 were those most likely to have spent their Child Tax Credit on basic needs in 2021,” they wrote. “Absent the payments, families report difficulties covering the cost of food, housing or utility payments, children’s clothing, and more.”

Tax policy advocates are hopeful that a deal has a greater chance of coming together this year compared to last year.

“I see increasing pressure for a tax deal by year’s end or in early January,” Adam Ruben, an advocate for the Economic Security Project, told The Hill. “The White House is making clear that their red line hasn’t changed. … The path is here for both parties to get what they want.”