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Stimulus Update: Child Tax Credit Amid New Congressional Deals

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It has been almost a year since the monthly payments of the Enhanced Child Tax Credit ended.

Most important points

  • Republicans want a corporate tax exemption by the end of the year. In return, some Democrats are calling for expanded child tax credit payments and reinstatement of the earned income tax credit.
  • Reinstating the Enhanced Child Tax Credit could lift millions of American children out of poverty.

Congress is known for negotiating, and that’s not a bad thing. When it works, everyone gets what they want. Currently, the debate is on a tax package at the end of the year. And linked to that year-end tax package is the reinstatement of an expanded child tax credit and an increase in the Earned Income Tax Credit (EITC).

what the GOP is asking for

Republicans — and some Democrats — want a change to a provision in the package that requires companies to deduct research and development (R&D) spending for five years. Companies usually deduct this expense from their taxes in the year the R&D money is spent.

Suppose a company spends $50,000 on R&D in the coming year. While they once could deduct the full $50,000, they now have to spread the deduction over five years. Companies see this as a tax increase and have taken their concerns to Congress.

Overall, Republicans are looking for about $50 billion in corporate tax cuts. In addition to returning to companies their annual R&D deduction, the GOP wants to reinstate loan interest deductions and renew the “bonus amortization” tax benefit.

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what the Democrats are asking for

According to Bloomberg News, a group of House Democrats is asking party leaders to negotiate a corporate tax cut if Republicans agree to an expanded tax credit for children and EITC.

what would that mean to you

If you have qualifying dependents in your household, reintroducing the extended child tax credit means you can once again have extra money in your bank account to help those dependents. And if you are a low to middle income working family, the EITC will help you supplement your income.

In 2021, the extended child tax credit provided families with up to $3,600 per dependent, and the EITC was worth between $1,502 and $6,728, depending on whether there were children in the household. We don’t have a clear picture to date as to whether these numbers will remain the same or will be changed in the congressional agreement.

a letter to the party leadership

Fifty-eight House Democrats sent a letter to House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer. In addition to sharing their concern that reversing corporate tax provisions would result in a “massive” tax cut for businesses, lawmakers wrote that Congress should not expand corporate tax breaks before providing additional support to families.

A possible deal within a deal?

It is possible that the parties agree to reinstate the expanded child tax credit and enhanced EITC only for low-income American families, though that, too, is not clear. Millions of Americans have been lifted out of poverty thanks to the expanded child tax credit, according to the Census Bureau. And once it was over, millions fell back into poverty. Perhaps both parties can direct payments to those who will benefit most.

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