Tax take: Prospects for key Democrats to extend business tax breaks in December: Slow down (Despacito)

Since Congress returned from the August recess, there has been growing discussion in tax policy circles around what might be included in December’s lame duck tax plan — especially the already-expired business tax breaks (some of which we discussed above). months highlighted). Many on Capitol Hill have assessed that such a tax package, and what it contains, is likely to depend on the midterm elections in November and which party wins control of the House and Senate. Nonetheless, legislative competition has intensified around key tax proposals, such as research and development (R&D) amortization fixes and state and local tax (SALT) relief cap relief.

Last week, however, an influential bicameral Democrat issued a joint press release saying they would block any extension of the “corporate tax credit” in the December tax package unless the expanded Child Tax Credit (CTC) ) is also extended. The letter was signed by key House and Senate tax writers Representative Suzan DelBene (D-WA) and Senators Michael Bennet (D-CO) and Sherrod Brown (D-OH) and Representative Rosa DeLauro (D-CT). Senators Bennet and Brown and Rep. DelBene will play key roles in shaping December’s tax package, particularly on the Senate Finance Committee and the House Ways and Means Committee, respectively. It’s important to note, however, that Representative DeLauro chairs the powerful House Appropriations Committee, which will play a central role in drafting December’s spending package — a legislative tool expected to be the foundational legislative tool for any tax legislation.lame duck

New child poverty data released by the Census Bureau last week could put pressure on congressional Democrats to take a firm stance on the CTC. But including expanded CTC provisions would have a huge revenue cost (the cost of these CTC expansions was $109 billion when the U.S. rescue package was enacted, according to the Joint Commission on Taxation). With the December package likely to require bipartisan support to implement, this new CTC dynamic raises two key questions:

  1. Are Republicans willing to negotiate the CTC in exchange for extending the sales tax break? That remains an open question that may not be answered until after the midterm elections. That said, Senate Republicans, particularly Sen. Mitt Romney (R-UT), have recently been willing to negotiate the CTC.
  2. If the expanded CTC is included in the December package, does that mean there is flexibility to extend business tax relief provisions, such as R&D amortization? Given the hefty costs associated with CTC expansion, that will certainly give Republicans leverage in December negotiations on broader sales tax breaks — especially since the CTC is a top priority for congressional Democrats and the White House.

Negotiations around the CTC could be key to determining the elements and scope of the December tax package, including the popular sales tax relief. Please stay tuned for developments. #TaxTake

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