Amendment to Child Tax Credit and Business Tax Benefits Under Consideration
Congress is currently deliberating on the possibility of enhancing the child tax credit, following the passage of a $78 billion bipartisan tax package by the House on Wednesday. The proposed changes include a temporary expansion of the child tax credit and the reinstatement of several business tax benefits. The bill now awaits consideration in the Senate, with its fate remaining uncertain.
Despite these proposed changes, the overall impact on the federal budget is expected to be minimal, with projections suggesting a reduction in revenues by less than $400 million over the next 10 years.
Key Highlights of the Proposed Changes to the Child Tax Credit:
– Increase the maximum refundable credit for lower-income families
– Allow low-income families with more than one child to receive the same credit for each of their children, aligning with higher-income families
– Provide families with the option to use their current or prior year earnings, particularly in cases of volatile income
– Adjust the credit for inflation starting in 2024
– Three-year duration, in effect from 2023 through 2025
What the Proposed Changes will Not Include:
Unlike the temporary expansion of the child tax credit in the 2021 American Rescue Plan Act, the current proposal does not increase the credit size for many families to $3,600 or make the full credit available to low-income families regardless of earnings. Moreover, it does not alter the minimum earnings threshold of $2,500 needed to claim the credit, nor the requirement for children to have Social Security numbers for their families to file for the credit.
Potential Impact on Families:
The proposed changes are expected to provide a larger credit in the first year to the low-income families of approximately 16 million children, benefitting more than 80% of those who currently do not receive the full credit due to their families’ low earnings. Moreover, it is estimated that over half a million children will be lifted out of poverty, with an additional 5 million benefiting financially once the proposal is fully implemented in 2025.
Business Tax Relief and Other Provisions:
The proposed tax package also includes provisions aimed at benefitting businesses. These business provisions seek to restore tax benefits related to research and experimentation investments, machinery and equipment, and the deductibility of interest expenses. Additionally, the package includes relief for those affected by recent disasters, as well as enhancements to the Low-Income Housing Tax Credit in order to increase the supply of affordable rental homes.
Historic Background:
The child tax credit has long been a subject of debate, with both political parties offering differing proposals over the years. The current proposed changes seek to address disparities in the tax credit among families of varying income levels.
In conclusion, while Congress considers the potential enhancements to the child tax credit and the restoration of business tax benefits, the impacts on lower-income families and businesses are of particular interest. The proposed changes, if implemented, have the potential to significantly benefit millions of families and provide much-needed relief to businesses. Moreover, the provisions also aim to address historic disparities in the tax system, with potential long-term implications for economic stability and societal well-being.
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