Take Tax: Democrats Key to Extending Business Tax Breaks in December: Despacito

After Congress returns from its August recess, there’s a growing discussion in tax policy circles about what might be included in December’s lame-duck tax package — especially the expiring business tax breaks (some of which we highlighted last month). Many on Capitol Hill predict that such a tax package and what it includes will be determined by November’s midterm elections and which party will control the House and Senate. However, legislative humor has increased around key tax proposals such as the research and development (R&D) amortization fix and state and local tax (SALT) deduction cap relief.

However, last week, a bicameral group of Democrats issued a joint press release to block any “corporate tax relief” in the December tax package unless the expanded Child Tax Credit (CTC) is extended. The letter was signed by key House and Senate tax secretaries Representative Susan DelBene (D-WA) and Senators Michael Bennett (D-CO) and Sherrod Brown (D-OH) along with Representative Rosa DeLauro (D-CT). Senators Bennet and Brown and Representative DelBene will have key roles in crafting December’s tax package, particularly in the Senate Finance Committee and the House Ways and Means Committee, respectively. However, it’s worth noting that Rep. DeLauro is the chairman of the powerful House Appropriations Committee, which will have a central role in crafting the December spending package — the legislative vehicle expected to be considered for any tax legislation. Lame duck.

New child poverty data released last week by the Census Bureau could put pressure on congressional Democrats to take a firm stance on the CTC. But it also comes at a higher revenue cost, including the expanded CTC provision (the cost of these CTC expansions was $109 billion when the U.S. bailout came out, according to the Joint Committee on Taxation). Since the December package will likely require bipartisan support for implementation, this new CTC variable raises two key questions.

  1. To extend business tax breaks, will Republicans be willing to negotiate on the CTC? This is an open question that will not be answered until after the midterm elections. That said, recently Senate Republicans, especially Sen. Mitt Romney (R-UT), have been willing to negotiate on the CTC.
  2. If an expanded CTC is included in the December package, does that mean there could be flexibility for longer extensions for business tax relief provisions, such as R&D amortization? Given the high costs associated with CTC expansions, it could give Republicans a significant advantage as they negotiate for broader business tax relief in December — especially since the CTC is a priority for congressional Democrats and the White House.

Negotiations around the CTC could be crucial in determining the components and scope of the December tax package, including popular business tax breaks. Stay tuned for progress. #Tax

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