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Federal Tax

Tax Bill Scorers Assess Cost, Economic Impact of Temp Incentives/ERC Crackdown

Tim Shaw  

· 5 minute read

Tim Shaw  

· 5 minute read

In scoring the Tax Relief for American Families and Workers Act of 2024 (HR 7024), the Congressional Budget Office (CBO) and Joint Commission on Taxation (JCT) forecast short-term federal budget increases will eventually even out over a 10-year window given the temporary nature of the bill’s child tax credit (CTC) and business tax provisions.

The bill, which advanced out of the House Ways and Means Committee January 19 with a 40-3 vote, would temporarily expand the CTC and extend certain Tax Cuts and Jobs Act provisions like the ability for businesses to write off higher amounts of interest as an expense, deduct research and experimentation expenses, and claim 100% bonus depreciation on certain equipment. It would also amend the low-income housing tax credit, provide tax relief for victims of federally declared disasters, and address double-taxation issues for qualified residents of Taiwan with US-sourced income.

According to a CBO cost estimate released January 25, the bill’s direct spending outlays would total $12.8 billion through fiscal year 20233. For the period FY 2024-2028, revenues would decrease by roughly $31.9 billion for a combined deficit hit of nearly $44.7 billion. However, for the period FY 2024-2033, revenues would rise overall by $12.4 billion for a slight deficit increase of $399 million.

The primary revenue raiser in the bill is Section 602, which would disallow ERC claims after January 31, 2024 and ramp up penalties imposed on promotors of the COVID-era tax break “for aiding and abetting the understatement of tax liability and would require those promoters to meet due diligence requirements,” as explained by the cost estimate document. The CBO and JCT expect this section would raise $60.8 billion through 2033.

The JCT used three macroeconomic simulation models to predict how the bill’s proposals would impact the economy. These are the Macroeconomic Equilibrium Growth Model, Overlapping Generations Model, and the Dynamic Stochastic General Equilibrium Model. A JCT report issued January 23 includes an appendix with more details on each model’s purpose and findings.

The main takeaway from the different simulations is that the Tax Relief for American Families and Workers Act’s macroeconomic effects on gross domestic product “are so small relative to the size of the economy and the degree of uncertainty associated with the estimate as to be insignificant within the context of a model of the aggregate economy,” in the JCT’s view.

In another word: “negligible.”

These projections are based on the bill’s statutory text in the Ways and Means version. The bill faces an uncertain fate in the House and Senate, as taxpayers await how potential tax changes retroactive to 2023 will affect their returns with tax season now officially underway.


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