Reviews | Democrats should ask Republicans for child tax credit

Before Democrats even think about giving businesses another tax break, they should be demanding more money for poor children.

After all, children are the constituency that Democrats are supposed care more.

As the midterm approaches, corporate lobbyists are demanding an extension of a key tax break tied to research and development. The background context: Historically, the tax code allowed companies to write off the cost of R&D expenditure immediately (rather than doing it more gradually, over several years after the fact). This meant businesses could reduce their tax bills immediately, rather than trickle down over several years.

This long-standing benefit, however, expired at the end of 2021.

Industry groups such as the Business Roundtable are working hard to get Congress to retroactively reinstate it, and they’ve issued dire warnings of the economic damage that could occur if lawmakers don’t rush to the rescue. Republican lawmakers have also campaigned for the revival of tax relief.

Here’s the twist: it was Republicans who took the tax break in the first place.

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If you don’t know why they were able to do this, you are not alone. After all, in 2017, when Republicans controlled both Congress and the White House, they passed a huge corporate tax cut.

To help make their corporate rate cuts as deep as possible, Republicans included measures that would (apparently) raise some cash to offset the cost. Among these so-called rewards was this change in the tax treatment of R&D expenditure.

The business lobby wasn’t super excited about these revenue increases, but the measures were generally not expected to bite right away. They would come into force several years later, if they occurred.

In fact, the presumption at the time was that these provisions could never materialize because future congresses would step in and overthrow them first. One of the architects of this 2017 GOP tax overhaul, Rep. Kevin Brady (R-Tex.), has even publicly and repeatedly endorsed proposals to undo his own work.

In other words, the R&D change was a cynical gimmick meant to make the bill see cheaper for official fiscal balance sheet purposes – but that leading Republicans never actually expected or wanted that to happen.

Republicans, of course, no longer control the legislature. But Democrats also tend to like the idea of ​​pushing companies to invest more in research and experimentation. So, Democratic lawmakers seem to be on board with cleaning up for Republicans this year.

The question now is what should Democrats demand in return for bailing out Republicans — that is, for mercilessly fixing a section of the tax code that their GOP counterparts willfully violated.

The best answer: more money for poor children, thanks to a renewed expansion of the Child Tax Credit.

Perhaps this trade seems to come out of left field. This is not the case. Negotiations for a deal along these lines – a bigger child tax credit, in exchange for corporate tax relief – have been going on quietly for months. And the case for prioritizing poor children in any end-of-year deal has grown much stronger this week.

Newly released census data revealed something almost magical: child poverty rates nearly halved in 2021 from the previous year, to the lowest level of child poverty ever recorded. It was no accident. It was a deliberate choice of Congress. More than 2 million children were kept out of poverty last year because Democratic lawmakers – temporarily – expanded the child tax credit.

The Democrats’ expanded child tax credit only lasted a year, however, and has since expired. And while Democrats have delivered on their promises this year to other Major constituencies — including elderly Medicare beneficiaries and unions — have yet to target more aid to poor children.

That’s partly because of opposition from a single Democratic senator, Joe Manchin III (W.Va.), to the revival of the children’s program. But – fingers crossed – the stars could now align for a bipartisan deal.

Some Republicans, eager to bolster their “family values” in good faith, have already expressed interest in expanding the child tax credit. They are unlikely to support the exact agenda that Democrats put in place last year. But a compromise measure might now be able to muster some critical votes from Republicans — especially if those Republicans view the plight of children as inextricably linked to that of a constituency that the GOP still prioritizes above all else (that’s i.e. companies).

Democrats should use the leverage they now have with Republicans to serve the most vulnerable Americans — unless Democrats want to demonstrate that they, too, care more about businesses than kids.

About Therese Williams

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