Lawmakers will face a crowded agenda when they return to Washington for the post-election lame-duck session. Among the issues demanding lawmakers’ attention will be whether to extend enhancements to the child tax credit (CTC), which resulted in an unprecedented drop in child poverty. Meanwhile, Corporate interest groups are also pushing Congress to expand the tax cut that they received in the 2017 Trump tax package. One thing is clear: Congress should not prioritize corporate tax breaks over America’s children.
The CTC was expanded in both size and scope as part of the 2021 American Rescue Plan Act (ARP) for one year only. Most importantly, the ARP made the credit available to the lowest-income families by making it fully refundable. The 2021 changes alone lifted 2.1 million children out of poverty last year. By allowing families to receive half of their credit through monthly payments, the CTC stabilized the finances of more than 36 million families, including nearly 62 million children, at a time of great economic uncertainty, allowing families to pay rents and mortgages, purchase healthier foods, as well as avoid debt. Rigorous research documented a significant reduction in hardship among the lowest-income families claiming the credit but no reduction in the labor supply, undermining CTC critics’ claims that the expanded credit would discourage individuals from seeking employment. A new study by University of Michigan researchers, for example, found that low-income families, those most likely to have directly benefited from the 2021 expansions, experienced, “a significant reduction in the number of material hardships…primarily driven by declines in food insecurity.”
Despite the CTC’s success and strong support from lawmakers, policy experts, and families, the 2021 improvements were allowed to expire in December 2021 and failed to make it into the Inflation Reduction Act (IRA), which was signed into law in August. Despite our strong economic recovery, with more than 10 million jobs added in Biden’s first two years in office, families still struggle to make ends meet amid global inflation. The status quo wasn’t working for many American families before the pandemic, and Congress will have another chance to act when it returns after the midterm elections and will consider other expired tax provisions.
Among the other tax issues competing for lawmakers’ attention is the fate of three corporate tax provisions that were enacted in the 2017 Tax Cuts and Jobs Act (TCJA) as part of a deal that also massively and permanently slashed the corporate tax rate. Those provisions reformed tax deductions for corporate research and experimentation (R&E) and interest, and extended extra-generous treatment of business investments (100 percent “bonus depreciation”) but gradually phased it out to limit the bill’s cost. While the TCJA cut the corporate rate immediately, congressional Republicans delayed implementation of the two deduction reforms that together offset just less than one-third of the cost of the corporate rate cut, as well as the phaseout of full expensing. Now that these reforms have begun to take effect, lobbyists for corporations that profited from the rate cut are fighting to hold onto the very provisions designed to pay for a fraction of its much larger cost. In other words, they are pushing to have their cake — the corporate rate cut — while eating it too — avoiding its partial “pay for.”
The IRA marked important progress toward restoring fairness to the nation’s tax laws. imposed a minimum tax on the largest and most profitable corporations and invested in tax enforcement so that wealthy households and large corporations pay the taxes they legally owe. Extending these corporate tax breaks would undermine the intent of the IRA by reducing the amount of the new tax paid by largest and most profitable corporations.
Prioritizing corporate tax breaks over America’s families would undermine these recent gains and push millions of American children backward into poverty. Congress should not pass up this historic opportunity. When members return to Washington next month, they should put families before wealthy corporations by improving the CTC before even considering corporate tax breaks.
Jean Ross is a senior fellow for economic policy at the Center for American Progress.