Tax Bill Fails to Pass Senate Hurdle

The broad tax bill that passed the House in January with overwhelming support finally reached the Senate floor on Thursday, but a vote to end debate failed, 48-44, largely on party lines.

The Tax Relief for American Families and Workers Act (HR 7024) was the result of negotiations between House Ways and Means Chair Jason Smith (R-MO) and Senate Finance Chair Ron Wyden (D-OR). It passed the House 357-70, but has had a difficult path the Senate. When it came time for a Senate floor vote, only three Republicans voted in favor: Senators Josh Hawley (R-MO), Markwayne Mullin (R-OK), and Rick Scott (R-FL).

Child Tax Credit.

Senators geared up for Thursday’s procedural vote with floor speeches the previous day — several of which emphasized the bill’s Child Tax Credit provisions.

Senator Bob Casey (D-PA) talked about how the 2021 expansion to the credit cut child poverty in half for a six-month period. “We finally found the solution to substantially reduce childhood poverty,” said Casey, and “we have a chance to do that, again, in a similar fashion.” He explained that while the Wyden-Smith bill would not “fully revive” the 2021 version of the Child Tax Credit, it would still benefit “16 million American children whose families are either in poverty or near poverty.” And Casey urged lawmakers to go father next year, when “a big tax debate” is anticipated as many Tax Cuts and Jobs Act (TCJA, PL 115-97) provisions expire.

Senator Sheldon Whitehouse (D-RI) said in his floor remarks, “There is a phony narrative, that if you give the Child Tax Credit to families, they will just avoid work. Our experience was the opposite.” He explained that once a family receives the credit, they were better able to afford child care, and then go to work. “This is a pro-child and pro-work tax credit.”

After the vote, Whitehouse accused Republicans of tanking the legislation because “they think it… helps families too much.” He added that “As Congress gears up for another tax debate next year, I look forward to taking real steps to unrig our corrupted tax code and deliver a lot more support for the families and workers who need it.”

R&D deduction.

Senator Maggie Hassan (D-NH) also drew attention to a bill provision “fully restoring critical R&D deductions,” adding that this “will give American creators and entrepreneurs the resources that they need to out-compete countries like China.” She said she’d heard from small businesses in her state about “the really tough financial decisions” they’ve had to make with the deduction expiring, adding that “waiting another year will be too late” for these businesses.

After the vote, Hassan said she was “disappointed” but added “I am going to continue to work across party lines to pass my bipartisan measure to restore the full R&D tax deduction and cut taxes for hard-working families.”

Disaster relief.

Senator Alex Padilla (D-CA) highlighted the disaster assistance provisions of the bill, noting the Park Fire underway in his state. “When a fire victim is wading through the ashes of their former home and thinking about how to rebuild … the last thing [they] should have to worry about is how they’re going to pay taxes on any settlement they receive,” said Padilla. “Disaster settlement funds are not income or assets,” contended Padilla, calling Tax Code provisions that treat them as such “outdated.”

Republican opposition.

Despite these provisions, an overwhelming number of Senate Republicans still voted against the bill. Some, including Senate Finance Committee Ranking member Mike Crapo (R-ID) and fellow Finance member Senator John Thune (R-SD), accused Democrats of holding “the ultimate show vote.”

Crapo also accused Democrats of “fabricating a narrative that Republicans don’t support small businesses, children, or alleviating poverty.” He noted several noncontroversial provisions in the bill that he said Democrats had blocked, including provisions on disaster relief taxes, US-Taiwan double-taxing, and R&D expensing.

And Crapo said that if the bill passed, the IRS would be required to reprocess millions of 2023 taxpayer returns, despite current backlogs. “If Democrats were serious about providing taxpayer relief,” he added “they would not pile additional work on the IRS that still cannot carry out basic taxpayer services.”

On the Child Tax Credit provisions, Crapo said they go too far by turning it into “a subsidy untethered to work, which is fundamentally contrary to what the credit was created to do.” And he added that “about 91% of the money in this bill for the Child Tax Credit would go to individuals who pay no income tax” — which he said does not constitute “tax relief.”

A day earlier, Senator John Cornyn (R-TX) said in his floor remarks that the “rush vote” was “not an honest attempt to pass legislation.” Cornyn accused Democrats of sitting on the bill for six months and waiting “until the final hour” before August recess to bring it to the floor. “I don’t see any window for wide-ranging debate on this topic,” Cornyn added, “and it doesn’t deserve a short shrift.”

Wyden countered, saying that the provisions in the bill are “the easy part” of tax reform, given the many more tax provisions set to expire at the end of 2025. Wyden added that “if Senate Republicans can’t work across the aisle, or work with the House that produced 357 votes,” next year will be “some very, very heavy lifting.”

Better news for the funding bill.

Meanwhile, a bill to fund the Treasury Department and IRS had better luck in the Senate Appropriations Committee, where lawmakers on both sides emphasized their willingness to compromise. The Financial Services and General Government Appropriations Act, which funds Treasury and the IRS in fiscal year 2025, passed 27-0 on August 1.

According to an August 1 summary of key provisions, the Senate bill provides the IRS with $12.3 billion, on par with fiscal year 2024 funding, to continue its work in improving customer service and for technology updates and enforcement. The bill also provides Treasury with $2 billion for non-IRS activities, including combatting money laundering, bank regulation, and “safeguarding the financial system against abuse.” The summary notes that this is a $160 million increase over fiscal year 2024. (The committee indicates that full text of the bill will be available here.)

Senator Chris Van Hollen (D-MD), who chairs the subcommittee responsible for the bill, emphasized the compromises made to achieve bipartisan support. Among those compromises, he said, was leaving in “legacy riders” he disagrees with, including those that impose certain restrictions on the District of Columbia. Van Hollen also noted that he had offered an amendment on US Supreme Court ethics requirements but had withdrawn that amendment after it failed to get bipartisan support.

Subcommittee Ranking member Bill Hagerty (R-TN) also spoke about compromises on the Republican side, adding that his “main concern is the $6.6 billion budget gimmick in this bill that proposes to take phantom savings from the Children’s Health Insurance Program.” According to Hagerty, this provision “pretends to cut spending that will never be spent, and then turns around and spends that on something that’s made-up savings with somebody else.” But Hagerty said he supported the bill in light of “the many positive elements” and felt it was important to move it forward.

Up for debate, but ultimately rejected 14-15, was an amendment to the funding bill presented by Senator Marco Rubio (R-FL) on electric vehicle tax credits and the “rule of origin” requirements under the US-Mexico-Canada trade agreement. Rubio talked about a loophole used by Chinese EV manufacturers who move their car-building operations to Mexico, proposing limits on government purchases and subsidies of such EVs. Senators Joe Manchin (I-WV) and Jon Tester (D-MT), however, offered a more modest amendment to address the issue, proposed via a manager’s amendment to the bill.