Stimulus Update: Child Tax Credit in the Middle of New Congressional Deal Making

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KEY POINTS

  • Republicans want corporate tax breaks by the end of the year. In return, some Democrats are asking for reinstatement of expanded Child Tax Credit payments and Earned Income Tax Credits.
  • Reinstatement of the enhanced Child Tax Credit could lift millions of American children from poverty.


It's been nearly one year since the enhanced Child Tax Credit monthly payments ended.

Congress is known to haggle, and that's not necessarily a bad thing. When it works, wheeling and dealing is how everyone gets a little of what they want. Currently, the debate involves a year-end tax package. And tied to that year-end tax package is the reinstatement of an expanded Child Tax Credit and enhancement of the Earned Income Tax Credit (EITC).

What the GOP is asking for

Republicans -- and some Democrats -- want a change to a provision in the package requiring businesses to amortize research and development (R&D) expenses over five years. Businesses typically deduct these expenses from their taxes the year the R&D money is spent.

Let's say a business spends $50,000 in R&D next year. While they were once able to deduct the entire $50,000, they must now spread the deduction out over five years. Businesses view this as a tax hike and have taken their concerns to Congress.

In total, Republicans are looking for approximately $50 billion in corporate tax cuts. In addition to giving businesses back their annual R&D deduction, the GOP wants to reinstate loan interest deductions and renew what's called the "bonus depreciation" tax break.

What Democrats are asking for

According to Bloomberg News, a group of House Democrats is asking party leaders to negotiate corporate tax breaks only if Republicans will agree to extend the expanded Child Tax Credit and EITC.

What it would all mean for you

If you have eligible dependents living in your home, reinstating the expanded Child Tax Credit means you may once again have extra money deposited into your bank account each month to support those dependents. And if you're a low- to moderate-income working household, EITC would help supplement your income.

In 2021, the extended Child Tax Credit provided families with up to $3,600 per dependent, and EITC was worth between $1,502 and $6,728, depending on whether there were children in the household. We have no clear picture as of today if those numbers would remain the same or be changed in a Congressional compromise.

A letter to party leadership

Fifty-eight House Democrats sent a letter to House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer. In addition to sharing their concerns that reversing tax provisions on corporations would lead to a "massive" tax break for corporations, the lawmakers wrote that Congress should not extend corporate tax breaks before delivering additional relief for families.

A possible compromise within a compromise?

It's possible that parties will agree to reinstate the expanded Child Tax Credit and enhanced EITC only for low-income American households, although even that is unclear. According to the Census Bureau, millions of Americans were lifted out of poverty thanks to the expanded Child Tax Credit. And once it ended, millions fell back into poverty. Perhaps the two parties can target payments towards those who would benefit most.

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