Democrats torn over corporate tax cut as child tax credit languishes

“It’s an insult to workers,” the senator said. Ed Markey (D-Mass.). “No corporate tax cuts before we get tax cuts for working and middle-class families.”

The brewing struggle shows how Democrats’ reconciliation plans, firmly entrenched in legislative limbo, continue to loom on Capitol Hill, obscuring and shaping debate over seemingly unrelated legislation with fiscal implications.

Democrats’ inability to extend their monthly child-pay program — let alone raise taxes on big business — has left some hesitant to help corporations, including on relatively uncontroversial issues.

Democrats actually backed the proposal in question — easing new restrictions that make it harder for tech companies to deduct their research expenses — as part of their reconciliation plan last year, though it elicited little attention.

But some say it was different because of the context: it was a package deal. Yes, companies got relief on research write-offs, but they would also have been subject to big increases in other taxes, and the plan included an extension of child credit and other benefits for earners. low and medium.

It’s a very different matter, some say, to scrap the corporate advantage now, embrace it, and let the rest of the Democrats’ plans hang in the balance.

“There is a striking comparison that is made [between helping families and businesses] which I think muddies the political waters,” Andrew Grossman, a top Democratic tax aide, said at a recent DC Bar Association-sponsored conference.

The problem lawmakers face as they try to settle their differences over a bill aimed at boosting U.S. competition with China through various measures, such as promoting the domestic semiconductor industry . Lawmakers launched a rare conference committee late last week to settle disputes between the House and Senate.

The bill appears to have a clear path to President Joe Biden’s office, and it’s prompting the business community to pressure lawmakers to use the opportunity to fix a problem created by Republicans in the framework. of their 2017 tax cuts.

For decades, companies had been allowed to immediately deduct the cost of their research expenses.

To help cover the cost of their tax cuts, Republicans repealed those provisions and required companies to spread those deductions over five years instead. The move was widely seen as a budget gimmick, as the research provisions are among the code’s most popular tax breaks.

Although the plan was approved as part of the Tax Cuts and Jobs Act 2017, the new rules only took effect last January, much to the chagrin of many businesses. Northrup Grumman told investors last month that the provisions would cost it $1 billion this year alone.

Many Democrats want to address the issue, with more than 40 senators backing a nonbinding senator’s amendment. Maggie Hassan (DN.H.) calling on lawmakers to address it on the semiconductor bill.

“There is overwhelming support for the R&D tax incentive,” she said. “It’s an important way to help propel our economy, outpace countries like China, and keep the United States at the forefront of innovation.”

Twenty-nine House Democrats, along with 40 Republicans, signed a recent letter urging party leaders to resolve the issue.

Some also hope to add other tax provisions to the measure, including a special new tax break to subsidize semiconductor production, though that seems less likely.

It is unclear how the party leaders intend to handle the dispute.

They might decide not to include tax issues in the Chinese bill, thinking it’s too much of a Pandora’s box. Some legislators have already feared that inserting a tax title into the legislation would slow its passage. Congress hasn’t passed any tax legislation this year, and if party leaders authorize some tax provisions, they could trigger pent-up demands from rank-and-file lawmakers to include many others as well.

Although Democrats have slim majorities in the House and Senate, they may not need the votes of progressives and could ignore their complaints — although that depends on what Republicans do.

Republicans could make up for the difference in votes, though they are split on the Chinese measure, including whether it should include tax provisions.

And some pushing R&D provisions have begun quietly strategizing how they might address concerns among progressives about not having something to offer average voters.

It’s unrealistic to think that lawmakers could tie the R&D provision to their long-sought expansion of children’s credit, a former top Democratic Senate adviser said, not least because of the Democratic senator from West Virginia. Joe Manchinthe opposition. The child credit proposal is also much more important than the search solution.

But perhaps lawmakers could pair that with smaller expansions of family-friendly tax breaks, like the Earned Income Tax Credit.

“Maybe it’s not the child tax credit, but are there other family-related tax provisions that don’t cost $100 billion a year and might be a bigger trade fair,” the former aide said, speaking on condition of anonymity.

“People are wondering if there are more balanced professions where you would take some of the venom out of the argument that we don’t do anything for families.”