On January 16, congressional leaders announced that a bipartisan agreement had been reached on a far-ranging, $78 billion tax package. The proposed legislation is not only bipartisan but bicameral: It was negotiated between Jason Smith, a Republican representative from Missouri and chairman of the House Ways and Means Committee, and Oregon Democrat Ron Wyden, who is a senator chairing the Finance Committee. If passed, the bill will be realized as the Tax Relief for American Families and Workers Act of 2024 (hereon, the Tax Relief Act).
Alongside a bevy of tax policy adjustments, the Tax Relief Act’s most significant changes include a partial reinstatement of Biden’s COVID-era expanded child tax credit — potentially easing financial burdens for millions of low-income families. The plan also stipulates an increase in the Low-Income Housing Tax Credit and more funds for disaster relief, including for the chemical spill in East Palestine, Ohio, and will be funded by ending the fraud-riddled Employee Retention Tax Credit. With Congress seemingly incapable of passing any social assistance without a lavish ritual offering to placate U.S. corporations, the legislation would also furnish businesses with an array of potentially lucrative new deductions and tax claims, potentially to the tune of hundreds of billions.
A Pittance for the Poorest
Unlike many other developed capitalist countries, the U.S. of the last four decades has grown much more confident in divesting from its children — in the face of all evidence about such investments’ outsized effects on future prosperity, for individuals and nations alike. Nevertheless, public spending on kids has declined, and continues to do so in our neoliberal times, in which the notion of state aid for the needy has become anathema.
A brief exception (that proves the rule) was the deployment of COVID aid programs: though quite modest as social democratic measures go, the pandemic assistance measures produced the largest and fastest decrease in poverty, especially child poverty, that has ever occurred in U.S. history. When those programs ended, poverty reemerged just as rapidly. (Though there is a caveat to these precise numbers, as will be described, this deterioration of social welfare has nevertheless been demonstrably severe.)
The Wyden-Smith legislation is loosely similar to Biden’s own COVID-era child tax credit increase, though the latter was considerably larger, and had other advantages, like mandating that the credit should increase month over month. The Biden policy, passed as part of 2021’s $1.9 trillion American Rescue Plan pandemic assistance bill, was wound down in 2022, returning low-income families to the previous, much less beneficent state of affairs.
A Center on Budget and Policy Priorities (CBPP) report underscored the tax credit’s load-bearing necessity, in light of the fact that poverty is again climbing in the U.S. after the expiration of the Rescue Plan; the CBPP cited census data indicating that an additional 15.3 million Americans fell below the (already artificially, misleadingly low) poverty line in 2022. This is the inevitable result of the end of COVID aid programs and a spiking cost of living. Per the Census Bureau, the rate leapt from 7.8 percent to 12.4 percent in just a year, a historic uptick.
Even if it’s not quite a systemic change, the enactment of the Wyden-Smith Tax Relief Act — if it survives the congressional floor — would at least make for a real improvement on the penurious post-Rescue Plan conditions. The CBPP projected that the act’s child tax credit increase could “lift as many as 400,000 children above the poverty line and make an additional 3 million children less poor in its first year.”
Under the present policy, parents receive less credit for additional children after their first. The Tax Relief Act increase, by increasing the credit and equalizing it for all of a family’s children, would represent a strong stride toward mending those unjustifiable gaps. Another couple thousand dollars a year can make a practically lifesaving difference to struggling families. However, the act would not eliminate the minimum income eligibility limit, with the result that the poorest families are often the ones receiving the most meager credit.
Professor of economics emerita at Portland State University Mary King is affiliated with the Labor Education & Research Center at the University of Oregon. Speaking with Truthout, she offered some essential caveats. First of all, it must be understood that both the dramatic increases and decreases in poverty, especially child poverty, in recent years have been muddled by statistical factors: King said that “the whole impact of what happened in 2021 [with Biden’s policy] was a little bit exaggerated. It was the result of looking with a newer poverty measure that’s only been reported for 12 years now.”
That census metric, the Supplemental Poverty Measure (SPM), is assessed differently than the standard official measure. By counting families’ SNAP funds, housing vouchers and other benefits towards income, “it makes kids’ poverty rates look very low,” explained King. “At the same time that child poverty got measured at 5.2 percent with this new SPM rate, it got measured at over 21 percent by our official poverty measure.”
“But,” King continued, “the main problem with the new poverty measure and the old poverty measure is that the U.S. poverty line itself is set so low” relative to developed capitalist nations like many across Europe. No matter the precise standard, a vast amount of poverty (and homelessness) is obscured in official statistics. As a result, our interpretations are in need of recalibration. The real scale of poverty in the U.S. outstrips even the most dismal projections.
The Tax Relief Act, again, comes up short in comparison to the Biden administration’s now-scuttled COVID-era child tax credit increase. For one, it would only increase the child tax credit to $2,000 per child by 2025 — whereas as the Biden COVID program expanded it to $3,600.
The comparison is even less favorable in regards to income limits. “What’s different about this bill is that it [resembles] what the policy has been before and after the Biden intervention — people at the very lowest incomes won’t get this new version of the child tax credit,” King said. “And they aren’t getting it now. But they did get it in 2021 [because of the Biden aid]. That’s the first big difference.”
In short, Biden’s American Rescue Plan had eliminated the income limit. It’s now been restored, to the detriment of the poorest families, and the Tax Relief Act would keep that restoration intact. In that respect, the proposal is a return to a status quo that has left families mired by the millions in bitter poverty.
“Going to [an equal credit] per child is a big improvement in this new [proposal],” King said. But thanks to the income limit, “it still leaves out some of the poorest people, and it’s maybe half the value per child of what the credit was in 2021.”
The Affordable Housing Labyrinth
The secondary social reform in the current version of the legislation is the increase in the existing Low-Income Housing Tax Credit (LIHTC). Much like the case of the child tax credit, a COVID-era increase in the LIHTC that had mandated an increase of 12.5 percent over the previous 9 percent would be allowed to expire in 2021; the newly proposed legislation would restore that increase through 2025. Wyden claimed in a statement that “the improvements this plan makes to the Low-Income Housing Tax Credit will build more than 200,000 new affordable housing units.” If so, it would be through indirect and roundabout means: by incentivizing, ostensibly, affordable construction.
The Department of Housing and Urban Development (HUD) describes the LIHTC as “the most important resource for creating affordable housing in the United States today.” King explained that these credits “are a part of our really absurdly overcomplicated way of providing affordable housing. In the 1980s, under Reagan, HUD said they were getting out of the housing business. And they did. They quit creating publicly owned, permanently affordable housing — which is what we need to have. And they shifted us towards this privatized system, where you give these tax credits out to people who can sell them in order to get funding to build. It’s a way of further reducing corporate taxes and it makes up a backwards way of funding affordable housing — which is also so complicated.”
People who want to develop affordable housing must find all kinds of funding sources with burdensome requirements. “There’s a tremendous administrative headache, too,” said King. “It’s just so complex that tremendous energy, time and people power go into pulling together the financing to make something happen.” The proposed LIHTC increase “sweetens the deal, by giving [potential affordable developers] access to a little more funding.” But this whole privatized system, she added, “is a terrible way to do affordable housing. And we’d do much better if we would just put public resources straight into owning, leasing and renovating housing.”
The Tax Relief Act also contains an increase in disaster relief funding, including for the East Palestine derailment. The bill also specifies a funding mechanism for its projected $78-80 billion in costs: It will alter “the administration and enforcement of the Employee Retention Credit,” a March 2020 measure that was intended to “help certain businesses continue to meet payroll obligations amid lower consumer demand.” The Tax Relief Act would delimit claiming the credit and strengthen IRS enforcement — evidently necessary, as the program had grown rife with fraud.
Paying the Corporate Tribute
Speaking of which, the bulk of the Republican side of the Tax Relief Act bargain is dedicated to reaping vast windfalls for corporations, which, of course, already dodge taxes with alacrity. For instance, the legislation would make it easier for businesses to file for extensive deductions, both for the near future and grandfathering in past years. That retroactive aspect seems rather remarkable: Businesses would be empowered to refile previous returns, raking in deductions from past years — back when they didn’t exist.
Defenders of that aspect would likely point to the fact that a similar maneuver is also technically available to some families who receive the child care credit, King points out. But realistically, businesses with loophole specialist tax attorneys are going to be better positioned to profit from this capability than overworked single moms, if the latter even learn that it exists, already an unlikely prospect.
“The corporate tax cuts pile onto what the Trump tax cuts already did,” commented King. They allow businesses to “write off research and development, and depreciation of stuff, even when it’s still in its useful life. And, they let you take it all off in a year, rather than spreading it out over five or 15. They’re really front-loading tax deductions for corporations.… It’s a way of shoveling wealth to the top.”
Though their stated aim is to pass the bill before tax filing begins on January 29, Wyden and Smith’s proposed Tax Relief Act is at this point far from a foregone conclusion; it faces significant opposition from congressional leaders, chiefly on the right, and it might very well be amended beyond recognition, if it comes to fruition in any form at all. Sen. Chuck Schumer has embraced it, but Politico described Idaho Republican Sen. and Finance Committee leader Mike Crapo’s response as “lukewarm,” in a report that also quoted Crapo’s remark calling the bill a “starting point.”
However welcome the suggested child tax credit increase, the Tax Relief Act’s authors ultimately declined to enact small changes that could make a big difference: namely, eliminating the minimum income floor. Conversely, when it came to aiding business, lawmakers seem to have pulled out all possible stops. (It also might be worth pointing out that this isn’t the first time Wyden has made common cause with Republicans on major social policy, either. In 2011, he worked side-by-side with Paul Ryan to hammer out a plan to introduce more privatization and “competition” into Medicare.)
There’s also the matter of a remark from Representative Smith that appears in the official press release. Perhaps it’s a telling one. Smith touts that “the legislation locks in over $600 billion in proven pro-growth, pro-America tax policies.” And yet the expenditures on the child tax credit and other aspects only total a reported $78-80 million. It would seem that the far larger figure Smith alluded to is a calculation of the potential windfall that corporations are poised to rake in, in the form of the plan’s numerous tax breaks.
“They’re certainly not putting it into housing credits,” remarked King. CBPP President Sharon Parrott also wrote that “two of the corporate provisions feature timing gimmicks that hide their true cost well beyond their temporary nature.” Most damningly, an independent analysis by the center-right Committee for a Responsible Federal Budget appears to confirm that interpretation of Smith’s comment, estimating an ultimate cost of $525 billion in corporate tax breaks over the next decade. Small wonder that, as NPR noted, conservative pro-corporate lobbying group Business Roundtable released an immediate statement of support.
Again, we see that when the public is in need, the congressional response is to bicker over how many crumbs they really deserve; whereas when business calls, leaders are veritably falling over themselves in the scramble to see who can demonstrate the most extravagant largesse. We might at least hope that some modicum of help for the needy also comes out of it.
As Mary King concluded, “It’s a step in the right direction, but the federal government should be investing far more in children and young families. Other countries do it, and the result is that they have a more inclusive and prosperous economy — because it’s good in the short term, and it’s good in the long term. It will help kids in the future, and families need it now.”