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Will Congress adopt tax relief this year?

It isn’t often you see an overwhelming bipartisan vote in Congress for tax relief but that’s exactly what occurred on January 31 in the U.S. House. By a vote of 357-70, the House approved the Tax Relief for American Families and Workers Act of 2024. The bill is still waiting for action by the U.S. Senate. According to congressional insiders, if the Senate doesn’t act on the bill in the next few weeks, it is unlikely to be adopted this year.

Here are some of the major provisions of this tax relief bill for individuals and businesses:

  • “modifies the calculation of the refundable portion of the child tax credit to require the multiplication of the credit amount in calendar years 2023-2025 by the number of qualifying children. The maximum refundable amount per child of such credit is increased to $1,800 in 2023, $1,900 in 2024, and $2,000 in 2025, with an inflation adjustment beginning after 2023.”

  • allows taxpayers to delay the date on which they must begin deducting their domestic research or experimental research costs over a five-year period until 2026. Taxpayers may therefore expense such costs incurred between 2022-2026.”

  • “extends the allowance for depreciation, amortization, or depletion in determining the limitation of the business interest deduction. It also extends 100% bonus depreciation and increases the limitations on expensing of depreciable business assets.”

  • “excludes from gross income, for income tax purposes, compensation for losses or damages due to certain wildfires. It applies only to payments received by a taxpayer after 2019 and before 2026.”

  • “increases the low-income housing tax credit ceiling to 12.5% for calendar years 2023-2025. It also lowers the bond-financing threshold to 30% for projects financed by bonds issued before 2026.”

The Tax Foundation provided this analysis of the bill:

“While the package is far from ideal, it represents a step in the right direction by taking a fiscally responsible approach to improving cost recovery. Most importantly, it addresses a major competitive disadvantage in our current treatment of research and development (R&D), returning to the international norm of allowing companies to fully and immediately deduct R&D expenses, including salaries for scientists and researchers. Similarly, it allows companies to fully and immediately deduct investment in equipment and other short-lived assets. However, it only extends these provisions temporarily through 2025, creating uncertainty for taxpayers and dampening the policies’ otherwise strong pro-growth incentives.”

A letter to Congress by the National Taxpayers Union said this about the proposal:

This legislation would deliver a much-needed boost to our economy while providing families with tax relief at a time when inflation remains persistently high. Importantly, it will accomplish these goals without significantly adding to our national debt. The Tax Cuts and Jobs Act of 2017 (TCJA) helped to create a strong economic climate that boosted wages, created jobs, and increased capital investment. Unfortunately, due to the lingering effects of the pandemic and a number of poor public policies, economic conditions have deteriorated and many Americans are struggling. As more and more portions of the TCJA have started to expire and phase out, it is imperative that Congress take action . . . This is a strong pro-growth tax package that sets the stage for making all provisions of the TCJA permanent in the future.”

A coalition letter signed by numerous trade groups and state chambers had this to say about the bill:

“Tax policy plays a critical role in the ability of American businesses to thrive, create jobs in the U.S., and effectively compete in today’s global economy. The Tax Relief for American Families and Workers Act will restore three tax policies vital to workers and America’s future: immediate expensing of domestic R&D expenses, enhanced interest deductibility, and 100% accelerated depreciation. All three of these tax policies have a long history of bipartisan support and are critical to strengthening America’s global competitiveness. They’ve enabled U.S. businesses to innovate, create good paying jobs, protect our national security, and remain at the cutting edge of the global economy. Restoring these provisions will have a profound impact on business investment, economic growth, and job creation.”

The Senate Finance Committee Ranking Member Senator Mike Crapo (Idaho) issued this statement on February 28 about the current status of the bill and his concerns:

“My key concerns, shared by many of my colleagues, remain the same – the prior year’s earnings provision must be dropped and replaced with actual tax relief. But with each week that has passed, members have strongly voiced additional calls for numerous modifications, and there are also increasing concerns about making 2023 changes this far into the IRS tax filing season. While I remain committed to seeking a bipartisan resolution that a majority of Senate Republicans can support, I hope the bill’s proponents commit to pursuing a more constructive strategy to achieve a mutually agreeable outcome.”

The opportunity to enact a bipartisan congressional tax relief bill would be a terrible thing to waste. Hopefully the House and Senate will be able to come to an agreement soon on tax relief that can be enacted this year for individuals and businesses.

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