The House Ways and Means Committee on Friday overwhelmingly approved a bipartisan agreement to expand the child tax credit while boosting two tax breaks that are widely used in agriculture.
The committee advanced the tax package 40-3 despite Democratic concerns that it didn’t do enough for the child tax credit. Three Democrats voted against the measure. The overall cost of the tax bill is offset by ending a pandemic-related employee retention credit early.
Spokespeople for the White House endorsed the bill Friday, citing the increased child tax credit and the fact that the cost of the legislation would be offset.
The bill would raise limits on the Section 179 expensing provision and restore bonus depreciation to 100%.
The Section 179 provision, which was made permanent by the 2017 Tax Cuts and Jobs Act, allows businesses to write off up to $1.16 million of the cost of equipment and software for 2023, with the limit phased down dollar for dollar as spending exceeds $2.9 million.
The Ways and Means bill would raise the expensing limit to $1.29 million and increase the phaseout threshold to $3.22 million, with both indexed to inflation.
The bonus depreciation provision, which allows a business to immediately write off the cost of equipment or buildings, is scheduled to phase out under the TCJA. The provision dropped from 100% to 80% of the purchase price in 2023 and is scheduled to fall to 60% this year, 40% in 2025 and 20% in 2026 before ending in 2027.
The bill would restore the allowance to 100% through 2025, which is when several other provisions of the TCJA expire, including an expanded estate tax exemption and the Section 199A 20% deduction on pass-through business income.
The change would reduce federal tax revenue by $32.8 billion in this year and $35.5 billion in fiscal 2025, according to the Joint Committee on Taxation. The increase in Section 179, while permanent, would have a much more modest revenue impact, totaling about $1.5 billion from FY24 through FY28.
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The limit on the child tax credit would rise to $1,800 for 2023, up from $1,600, and then go to $1,900 for 2024 and $2,000 for 2025, along with an inflation adjustment for both those years. The provision would cost $33.5 billion over three years.
“When we travel back to our districts next week, we can show our constituents who are struggling with inflation and high interest rates, that when Congress works together, we can still achieve big things – bipartisan tax relief that grows wages, supports better jobs, gives families more breathing room and keeps America competitive on the world stage,” said Ways and Means Chairman Jason Smith, R-Mo.
While most Democrats supported the bill, they complained that the expansion of the child tax credit didn’t go far enough.
“One of the things that troubles me about this package is that it lavishes support on those who need it the least when we have an opportunity to refocus part of the package on those who need it the most,” said Rep. Earl Blumenauer, an Oregon Democrat who ultimately supported the bill.
Rep. Lloyd Doggett, D-Texas., was one of the three Democrats to oppose the bill, saying it was "fundamentally unfair."
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