Broad Tax Bill Queued Up for Senate Consideration

The bipartisan $78 billion tax package that advanced out of the House early this year is slated to be considered on the Senate floor tomorrow — but time is short with lawmakers heading into a five-week recess. Meanwhile, the Senate Finance Committee turned its focus to tax tools to help local economic development Tuesday morning.

Late Monday, Senate Majority Leader Chuck Schumer (D-NY) filed cloture on the Tax Relief for American Families and Workers Act (HR 7024), a broad tax measure that passed the House 357-70 in January. The bipartisan bill was crafted by Congress’ top taxwriters — House Ways and Means Committee Chair Jason Smith (R-MO) and Senate Finance Committee Chair Ron Wyden (D-OR).

In his floor remarks, Schumer said “[i]t’s time to get this bill done right away,” urging that his “Republican colleagues not to stand in the way of helping parents and small businesses and families.” The Senate is scheduled to recess from August 5 to September 9, however, so time is short for action on the bill.

Child tax credit in the spotlight.

The bill has faced opposition from Senate Republicans — in particular, Finance Ranking member Mike Crapo (R-ID) has called out the child tax credit provisions. Crapo said the provisions “represent a significant shift … to transform the CTC from primarily working family tax relief into a government subsidy.” He expressed the most concern about a portion of the proposal “[a]llowing individuals to receive a refundable credit when they have zero annual earnings” via the “prior year’s earnings provision.”

Schumer highlighted the child tax credit provision in his floor remarks, saying “it will do immense good for tens of millions of families, so many kids.” He noted the 2021 expansion to the child tax credit under the Democrats’ American Rescue Plan Act (ARPA, PL 117-2), adding that it was “one of the very first things this majority did in 2021” and that “it cut child poverty in close to half.”

ARPA increased the child tax credit from $2,000 to $3,000 per qualifying child aged 6 to 17 — and it provided $3,600 per child under age 6. It also made the credit fully refundable — previously under Tax Cuts and Jobs Act (TCJA, PL 115-97) provisions, only $1,400 was refundable as the “additional child tax credit.” However, the ARPA expansion was only effective in 2021.

The Wyden-Smith bill, as passed by the House, would adjust how the additional child tax credit is calculated for 2023-2025 by multiplying the credit by the number of qualifying children. It sets a maximum refundable amount per child of $1,800 in 2023, $1,900 in 2024, and $2,000 in 2025. It also provides for an inflation adjustment of the credit beginning in 2024.

Small business provisions.

Schumer also noted provisions in the Wyden-Smith bill that would benefit small businesses. He called the bill a “boon for small business, because it will reward them … for investing in R&D … and help them pay for new equipment so they can compete against larger competitors.”

Specifically, the bipartisan bill would revise Code Sec. 174 and add a new Section 174A to allow businesses, both large and small, to immediately deduct the cost of their US-based research and experimental costs — but just through 2025. Currently, businesses must deduct those costs over a five-year period. The five-year deduction period went into effect at the start of 2022 under the TCJA.

Schumer explained that “[w]hen businesses get this tax credit, for investing, they are going to hire more people, more workers. And it particularly benefits small businesses that don’t have the flexibility to do these things on their own without this tax break.”

Among the other business-friendly provisions in the Wyden-Smith bill is a revision to Code Sec. 163(j) that would allow businesses to apply the earnings before interest, taxes, depreciation, and amortization (EBITDA) computation method in determining business interest deductions through 2025. And the bill would revise Code Sec. 168(k) to allow for 100% bonus depreciation for certain property placed into service in 2023-2025. Finally, it would increase the limitation on depreciable business assets expensing under Code Sec. 179(b).

Low-Income Housing Tax Credit.

Schumer drew attention to bill provisions that he said would expand the Low-Income Housing Tax Credit (LIHTC) “very significantly.” He called LIHTC “one of the most effective tools we have for increasing the supply of affordable housing units,” adding that including the provisions in the bill was “non-negotiable” for him.

The Wyden-Smith bill would amend Code Sec. 42(h) by, for 2023-2025, increasing the LIHTC state housing credit ceiling for low-income housing by 12.5%. It also would lower the tax-exempt bond financing threshold for buildings from 50% to 30% for projects financed by bonds with issue dates before 2026.

The bill’s LIHTC provisions came up during the Senate Finance Committee’s hearing on Tuesday — that hearing focused more broadly on the Tax Code’s local economic development tools. Wyden noted that “on Thursday, in less than 48 hours, senators are going to have a chance to support a policy that’s going to build hundreds of thousands of units of low-income housing, making it possible for folks to be part of the local dream.”

According to hearing witness Michael Novogradac, a CPA focused on affordable housing and community development, over 21 million rental households are cost-burdened, meaning they pay more than 30% of their income in rent. He noted how both provisions from the Wyden-Smith bill would help alleviate the affordable housing crisis.

Novogradac explained that, based on a January 2024 estimate, “the net result of those two changes … is it would provide an additional 200,000 of affordable housing units.” He added that this is “a drop the bucket against the 21 million, but you’ve got to start somewhere.”

Senator Michael Bennet (D-CO) tied the housing crisis to workforce needs, describing the housing issues faced by teachers in Denver — where he previously served as school superintendent. “Part of creating a thriving community is making sure that people that are working in a community can actually afford to live there,” he explained at the hearing.

Speaking about the Wyden-Smith bill, Bennet added, “I can’t tell you how pleased I am that we’re going to have a vote … this week on the floor.”