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TAX TAKE: Key Democrats on the Prospects for Extending Business Tax Breaks in December: Slow Down (Despacito)

Tax Alert

Since Congress returned from August recess, there has been growing discussion in tax policy circles around what could be included in a December lame duck tax package – especially business tax breaks that have expired (some of which we highlighted last month). Many on Capitol Hill have assessed that such a tax package, and what is included, will likely be determined by the November midterm elections and which party wins control of the House and Senate. Nonetheless, legislative jockeying has ramped up around key tax proposals, such as an research and development (R&D) amortization fix and state and local tax (SALT) deduction cap relief.

However, last week, an influential group of bicameral Democrats issued a joint press release stating they would prevent the extension of any "corporate tax breaks" in a 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), along with Representative Rosa DeLauro (D-CT). Senators Bennet and Brown and Representative DelBene will have a key role shaping a December tax package, particularly in the Senate Finance Committee and House Ways & Means Committee, respectively. However, it is important to note that Representative DeLauro is the Chair of the powerful House Appropriations Committee, which will have a central role drafting the December spending package – which is expected to be the underlying legislative vehicle for any tax legislation to be considered in the lame duck.

New child poverty data released last week by the Census Bureau is likely to apply pressure on Congressional Democrats to take a firm stand on the CTC. But including the expanded CTC provisions would come with a significant revenue cost (the cost of these CTC expansions were $109 billion when enacted in the American Rescue Plan, according to the Joint Committee on Taxation). Since the December package will likely need bipartisan support for it to be enacted, this new CTC dynamic raises two key questions: 

  1. In exchange for extending business tax breaks, would Republicans be willing to negotiate on the CTC? This remains an open question that may not get an answer until after the midterm elections. That said, there has been recent willingness by Senate Republicans, particularly Senator Mitt Romney (R-UT), to negotiate on the CTC.
  2. If an expanded CTC is included in a December package, could that mean there could be flexibility for longer extensions for business tax relief provisions, such as R&D amortization? Given the significant costs associated with the CTC expansions, that could certainly give leverage to Republicans when negotiating for broader business tax relief in December – especially since the CTC is a top priority for Congressional Democrats and the White House.

Negotiations around the CTC could be pivotal in determining the elements and scope of a December tax package, including popular business tax breaks. Stay tuned for developments. #TaxTake

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