Congress Moves to Expand the Child Tax Credit

Happy Wednesday! Yesterday was an exciting day in the nation’s capital! No, there wasn’t any voting happening—Congress gave itself a snow day. But Capitol Hill is good for something besides the occasional lawmaking: It’s also an excellent spot to go sledding.  

Quick Hits: Today’s Top Stories

• The U.S. military launched additional strikes against Iran-backed Houthi rebels in Yemen on Tuesday, U.S. Central Command (CENTCOM) announced yesterday—the third such barrage since late last week. U.S. forces targeted and destroyed four anti-ship ballistic missiles in an ongoing effort to secure Red Sea shipping lanes against continued Houthi attacks on commercial vessels. Houthi militants fired another missile following the U.S. strike, striking a Greek-owned, Maltese-flagged ship—which remained seaworthy and reported no injuries from the attack. Oil giant Shell announced Tuesday it would suspend travel through the Red Sea over spillage risks and crew safety concerns should one of their vessels be attacked. 
• Meanwhile, CENTCOM confirmed yesterday that a search remains active for two Navy SEALs missing off the coast of Somalia after falling into choppy waters Thursday night. The pair were part of a team attempting to board a small boat, called a dhow, in order to seize Iranian weapons—including ballistic and cruise missiles—being illegally transported to Yemen. CENTCOM said it was the first such seizure since Houthi attacks on the Red Sea shipping lanes began in November of last year. 
• Israel and Hamas reached a deal on Tuesday to allow additional medical aid into Gaza in exchange for medication being provided to some of the Israeli hostages Hamas and its allies are still holding in the Gaza Strip. Qatari and French negotiators helped broker the deal, which will see medication—purchased in France and shipped to Qatar, where it will be transferred to Gaza—delivered to approximately 45 hostages.
• A federal judge on Tuesday blocked JetBlue’s $3.8 billion effort to acquire budget airline Spirit, arguing that the acquisition would disadvantage customers who rely on Spirit’s uniquely low prices. “If JetBlue were permitted to gobble up Spirit—at least as proposed—it would eliminate one of the airline industry’s few primary competitors that provides unique innovation and price discipline,” argued Judge William G. Young of the U.S. District Court for the District of Massachusetts. The ruling was seen as a win for the Biden administration after the Justice Department challenged the merger on antitrust grounds in March. Spirit and JetBlue responded to the ruling in a joint statement, saying the companies were considering “next steps as part of the legal process.”
• Former Arkansas Gov. Asa Hutchinson dropped out of the 2024 Republican presidential primary on Tuesday after picking up just 191 votes in Monday night’s Iowa caucuses. Hutchinson—who was one of the few candidates to stridently and consistently criticize former President Donald Trump—had repeatedly failed to qualify for GOP debates, appearing in only the first debate last August. “My message of being a principled Republican with experience and telling the truth about the current front-runner did not sell in Iowa,” he said in a statement Tuesday. “I stand by the campaign I ran.”
• Republican Sen. Chuck Grassley of Iowa is being treated for an infection, his office announced Tuesday. A spokesperson for the senator said Grassley, who is 90 years old, “is in good spirits and will return to work as soon as possible following doctors’ orders.”

Congress Tiptoes Toward a Tax Deal

A Democratic senator and a Republican congressman announced yesterday what has effectively become an endangered species in Congress: a bipartisan, bicameral legislative framework with provisions that are supported by a large number of Republicans and Democrats.

Sen. Ron Wyden, the Democratic chair of the Senate Finance Committee, and Rep. Jason Smith, the Republican chair of the House Ways and Means Committee, published on Tuesday their negotiated agreement to provide tax breaks for businesses and expand the Child Tax Credit (CTC). The framework reflects months of negotiations, and supporters of the bill want to push it through before the end of the month—in time for tax filing season. But the deal comes as House and Senate leadership try to avert a government shutdown, and it’s unclear if a tax package can pass both chambers.

The agreement, to be introduced as the Tax Relief for American Families and Workers Act of 2024, includes $78 billion in tax breaks and expanded credits. It would expand access to the CTC implemented under the 2017 Tax Cuts and Jobs Act (TCJA), which doubled the credit from $1,000 to $2,000 per child through 2025. It would also phase in an increase in the refundability of the CTC to allow low-income families to take full advantage of the credit. 

Currently, low-income families whose income tax liabilities are lower than the credit don’t receive the full $2,000 per child because the credit isn’t fully refundable—they can only receive a maximum of $1,600. The new framework increases the refundability amount per child to $1,800 in tax year 2023, $1,900 the following year, and the full $2,000 in 2025. The plan also allows families to use their current- or prior-year income for the purposes of calculating the CTC; adjusts the credit for inflation; and changes how the credit is calculated for families with multiple children, enabling larger families to realize more of the credit at lower income levels.

“Fifteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead,” Wyden said in a statement yesterday. The left-leaning Center on Budget and Policy Priorities (CBPP) calculated that in its first year, the CTC provisions “would lift as many as 400,000 children above the poverty line and make an additional 3 million children less poor as their incomes rise close to the poverty line.” By 2025, the CBPP added, the CTC would bring 500,000 children above the poverty line. 

The agreement also includes a range of tax benefits for businesses, some of them reversing changes made by the 2017 law. For example, the plan would allow businesses to deduct research and development (R&D) costs from their taxes immediately (and retroactively going back to 2022), instead of spreading the deduction over five years as required by the TCJA. Full expensing for investments in machinery and equipment—something that lapsed at the end of 2022—would be restored, along with flexibility for companies deducting business interest from their taxes. The cap on the amount small businesses can write off would be raised from $1 million to $1.29 million. Additional provisions include boosting the low-income housing tax credit, reducing the tax burden for businesses and employees working in both Taiwan and the U.S., and providing disaster relief for communities affected by natural disasters and the Ohio train derailment.

The plan would pay for the breaks and credits, according to its proponents, by cracking down on abuse of the COVID-era Employee Retention Tax Credit Program (ERTC), which has been plagued by fraud. The deadline for backdated claims for the credit would be moved up from April 2025 to January 2024, and fines and penalties for aiding and abetting fraud under the program law would also be increased. The changes, according to the deal’s proponents, would save an estimated $70 billion and make the framework nearly deficit neutral.

Marc Goldwein, the senior policy director for the Committee for a Responsible Federal Budget, commended legislators for including offsets for the cost. “They stuck by—and in doing so are enhancing—the principle that things need to be offset, everything, including extensions of tax policies,” Goldwein told TMD. “The policy overall is well thought out. Nothing’s perfect, but they didn’t just try to spend a trillion dollars on expanding the tax credit and business breaks.” He did note, however, that the offset likely covers the “sticker price, but they’re not offsetting the steady state cost,” and that the ERTC savings are a one-off, which wouldn’t offset future costs if the provisions—most of which would expire in 2025—are not just extended but made permanent.

Painting with broad partisan strokes, you’d expect Democrats to mostly line up behind the CTC and low-income housing tax credit enhancements and Republicans to support the business tax breaks—but lawmakers from both parties have expressed support for both the credits and the tax breaks.

“American families will benefit from this bipartisan agreement that provides greater tax relief, strengthens Main Street businesses, boosts our competitiveness with China, and creates jobs,” Rep. Jason Smith said in a statement yesterday. Democratic Sen. Maggie Hassan of New Hampshire, who has long pushed for the R&D deduction, also celebrated the agreement. “The bipartisan deal we have reached to restore the R&D tax deduction and provide a tailored expansion of the child tax credit will help drive innovation here in America and help children and families thrive,” she said in a statement shared with TMD. Rep. Mike Kelly of Pennsylvania, a Republican member of the Ways and Means Committee, praised the deal for its enhancements to the “Republican-created Child Tax Credit, which strengthens and supports families.”

But even with strong bipartisan support, the package’s path to becoming law is uncertain. House Speaker Mike Johnson hasn’t yet publicly commented on the proposal. Senate Majority Leader Chuck Schumer supports the deal, but he and Johnson are also busy trying to push through a continuing resolution to keep the government from shutting down this week—an effort that has thus far proven elusive.

Other key lawmakers have yet to endorse the deal, including the ranking members of the House Ways and Means and the Senate Finance committees—Democratic Rep. Richard Neal of Massachusetts and Republican Sen. Michael Crapo of Idaho, respectively. “The agreement announced today by Chairman Smith and Chairman Wyden is a thoughtful starting point for the House to begin the process,” Crapo said in a statement yesterday. The White House also held off on backing the proposal. “We appreciate Chairman Wyden and Chairman Smith’s work toward increasing the Child Tax Credit for millions of families and supporting hundreds of thousands of additional affordable homes,” White House spokesman Michael Kikukawa said. “And [we] look forward to reviewing the full details of their agreement.”

The Biden administration has long pushed for an expanded CTC after the brief but dramatic boost to the credit included in the Democratic-backed American Rescue Plan (ARP) expired at the end of 2021. Some progressive lawmakers believe the Wyden-Smith deal doesn’t expand the credit enough, particularly because it is paired with tax breaks for businesses. “The Republicans have decided that the only way to help poor children is if giant corporations will get out billions of dollars in tax rebates,” Democratic Sen. Elizabeth Warren of Massachusetts argued last week. “That’s the wrong approach.” 

Rep. Rosa DeLauro of Connecticut, the top-ranking Democrat on the House Appropriations Committee, agreed. She argued last week that under the framework, “Millions of children would be left in preventable poverty because of a policy choice, all while giant corporations who do not pay any taxes get a massive tax break.”

The ARP expanded the CTC from $2,000 to $3,000 per child, with a $600 bonus for kids under age 6. It also dolled out the credit in direct monthly payments (rather than as an end-of-year tax refund) and provided the full credit to families even if they had no income. The expansion inspired much excitement and debate among both progressive advocates and some pro-life family policy advocates on how best to structure such a beefed-up CTC. Some progressives still see an ARP-style expansion as their lodestar. “A bipartisan deal that tweaks refundability leaves all of the other parts of the expanded CTC behind as well, and may complicate future negotiations on the grounds that the bipartisan agreement settled for less,” argued David Dayen, executive editor of The American Prospect, a progressive magazine. 

Jon Schweppe, the director of policy and government affairs at the populist conservative American Principles Project, supported the larger expansions under discussion in 2021 and 2022. “We’re always going to advocate for true expansion,” Schweppe told TMD. But he sees the current proposal as a step in the right direction: “I think it is the bipartisan amount we can actually achieve, that’s the reality.”

Wyden, Smith, and congressional leadership will now have to try to cobble together enough support in less than two weeks if they want to meet their deadline of January 29, when the tax filing season begins. One open question is whether they’ll try to pass the package as a standalone bill or tie it to efforts to fund the government. “My goal remains to get this passed in time for families and businesses to benefit in this upcoming tax filing season,” Wyden said yesterday. “I’m going to pull out all the stops to get that done.” 

Worth Your Time 

• Agam Goldstein-Almog survived 51 days of Hamas captivity in the Gaza Strip. In a gut-wrenching first-person account for the Free Press, Goldstein-Almog shares her story—and that of the other young women still being held by the terrorist organization. “These young women were scared and feared for their lives,” she recounts. “They begged us to meet with their families if we were released. Tell them you saw us, they said, but don’t tell them everything. Save their souls from the ghastly details, they said, some of them close to their breaking point. They pleaded with us to continue to fight for them. To make sure they come home. Don’t let the world forget us, they whispered. They told me that more than 50 days ago. The women I met in captivity are strong. They are resilient. And despite everything they’ve been through—evil that no human being should ever witness—they still grasped on to hope. But when I left them, that hope had started to dwindle. On November 26 I was released with my mother and my brothers after 51 days in captivity in Gaza. But I am forever changed. … A murdered father, a murdered sister, 51 days in the hands of terrorists—those are not things you know how to cope with when you’re 17 years old. What I know is that I cannot begin to live my life again until we bring home our sisters and brothers, mothers and fathers, sons and daughters. I cannot breathe freely knowing that they are still there. I am only a teenage girl. But I beg the world to listen to my cry: save them. Bring them home now.” 

Presented Without Comment 

Financial Times: Ben and Jerry’s Calls for Permanent Ceasefire in Gaza

Also Presented Without Comment

Daily Wire Host Ben Shapiro: “The fact that Donald Trump has stuck around so long, it is an amazing durable story. I mean, It’s the most amazing political comeback, in a sense, since Richard Nixon.”

Toeing the Company Line

• Today’s the day! Dispatch fans in the New England area can join Sarah, Steve, Jonah, and Mike—plus Andrew Cline of the Josiah Bartlett Center for Public Policy—for a meet-and-greet event and discussion TONIGHT at 6 p.m. ET at the Grappone Conference Center in Concord, New Hampshire! More information on how to register can be found here.
• In the newsletters: The Dispatch Politics crew filed their dispatches from frigid Iowa after Monday’s caucus and looked ahead to New Hampshire, while Nick looked at the Iowa results (🔒) and concluded that the establishment won.
• On the podcasts: Jonah is joined by Ross Douthat on The Remnant for a post-mortem on the Iowa caucuses and a look ahead to an increasingly like Trump-Biden rematch.
• On the site: Stirewalt explains why he thinks Gov. Ron DeSantis will probably hang around in the GOP primary for a while; Nick Hafen explains what’s at stake in Loper Bright Enterprises v. Raimondo, which SCOTUS will hear today; and Jonah writes on President Joe Biden’s decision to—finally—strike back against the Houthis.

Let Us Know

Are you in favor of expanding the Child Tax Credit? Do you think doing so is a necessary prerequisite to reversing declining birth rates in the U.S., as some advocates have argued?