Tax deal faces obstacles as crucial markup looms

A deal reached this week by top tax writing committees in Congress faces a number of hurdles in the House and Senate.

Ahead of a Friday markup scheduled for the bill in the House Ways and Means Committee, lawmakers in both chambers have concerns about how exactly the $70 billion to $80 billion in tax relief will be divided between an expansion of the child tax credit (CTC) and deductions for businesses.

The Democratic left flank says the bill allots too little for the CTC and restores business credits that were already offsetting a 2017 reduction in the corporate tax rate.

“We should demand more of ourselves than going along with a deal that gives big corporations billions and billions of dollars more in tax breaks than help for struggling families. It just makes no sense at all,” Sen. Elizabeth Warren (D-Mass.) told reporters Wednesday.

“The fact that we’re not prioritizing children first as a country and understanding that that will help our economy, businesses and future entrepreneurs — the whole thing is sort of ridiculous,” Sen. Cory Booker (D-N.J.) said Wednesday.

Republicans argue the CTC expansion is too generous and that people should be working harder to qualify for the credit.

“There are some things that shouldn’t be in there, some of the things on the CTC, for example. It’s always been connected to work. You can get it for one year, but then you can get the thing for two successive years without working,” Sen. John Thune (R-S.D.) said Wednesday. “They increased the refundability amount and indexed the overall credit [to inflation]. There are some things in there that I’ve got to take a look at.” 

Revenue tables for the bill hadn’t been released to the public as of Thursday, but the proposal from the Ways and Means Committee allows taxpayers in 2024 and 2025 to use income estimates from prior taxable years in calculating their credit.

Conservatives are troubled that this would mean people would have to work less to claim the credit — a major sticking point in past efforts to expand the CTC.

“This policy would cut the CTC’s current annual work requirement in half by allowing parents to claim the CTC for two years while working in just one,” Matt Weidinger, a senior fellow with the conservative American Enterprise Institute, wrote in a Wednesday analysis of the proposal.

Beyond disagreements about the substance of the deal, there are procedural questions about what larger package the tax proposal could be attached to, or whether it would be its own separate bill. Stand-alone tax bills are relatively rare pieces of legislation.

“I think probably it will be a stand-alone bill,” Rep. Tom Cole (Okla.), a senior Republican appropriator, told The Hill on Wednesday. “We’re having enough challenges moving appropriations bills. I don’t know why you’d want to add something else to them right now.”

“I have a lot to criticize in the bill, but I think this is the best we can get at this particular time, realizing the precarious situation that [the Speaker] is in,” Ways and Means Committee member Bill Pascrell (D-N.J.) told The Hill.

Speaker Mike Johnson (R-La.) is under pressure from House conservatives to support steeper cuts and stricter immigration policy despite him already striking a bipartisan funding agreement with Senate Majority Leader Chuck Schumer (D-N.Y.).

While Schumer endorsed the deal on the Senate floor Tuesday and Wednesday, and specifically its expansion of low-income housing credits, Johnson still hadn’t weighed in on the deal as of Thursday morning.

Experts on the Congressional tax negotiations process told The Hill that the bill is just at the beginning of its journey to becoming a potential law and that the changes to it could be manifold.

“I just have a sense that we may see changes in the markup in Ways and Means, and once we get to the Senate, the Senate always gets its own stuff,” former Ways and Means Committee tax counsel Marc Gerson said in an interview. “And so what we have is a base bill … and I think it’s going to change.”

One source of pressure for more changes to the bill is the $10,000 cap on the state and local tax (SALT) deduction imposed through Republicans’ 2017 Tax Cuts and Jobs Act.

Blue-state Republican lawmakers representing districts with high local taxes have insisted on raising the SALT cap in any tax measure.

“I’m a no on a tax package that does not have adequate relief for SALT,” Rep. Nick LaLota (R-N.Y.) told The Hill. 

“In high-tax blue states, it’s a popular thing to be pro-SALT, but to also fight for it. And I’m willing to fight for my constituents by voting no — against my own party’s tax package — unless and until it has meaningful relief on SALT,” he added.

Top tax writers in both chambers say there’s plenty of room to maneuver to get the deal done, specifically with the cancellation of the employee retention tax credit (ERC), which would serve as the deal’s main source of new revenue.

“There’s room on that,” Rep. Richard Neal (D-Mass.), ranking member of the House Ways and Means Committee, told The Hill on Wednesday.

“There’s a lot of moving parts that could bring a lot of Democrats along. We could make some adjustments based on the score [to] refundability on the child tax credit. There’s no inherent hostility on our side to some of the provisions, but we want them better paired with our requests for equitable purposes,” he said.

Neal said he “speculated” that the lion’s share of the roughly $78 billion in tax relief was now going to business credits rather than the expanded CTC. 

“With a little bit more raising the ceiling, we could accomplish all the priorities that the members desire,” he added.

IRS Commissioner Danny Werfel was on Capitol Hill last week briefing the Senate Finance Committee on fraudulent activity associated with the ERC claims, which lawmakers say has been rampant as a result of intensive marketing and promotion by lawyers and accountants in the tax prep industry.

“We heard from a whistleblower that with these new claims, 95 percent of them were fraudulent,” Senate Finance Committee Chair Ron Wyden (D-Ore.) told The Hill Wednesday. “I asked the commissioner if that was right, and he said, basically, ‘Yes.’”

Enthusiasm for the deal is also high with Wyden’s counterpart on the Senate Finance Committee, ranking member Mike Crapo (R-Idaho).

“The agreement announced … by Chairman Smith and Chairman Wyden is a thoughtful starting point for the House to begin the process,” Crapo said Tuesday.

A White House spokesperson told The Hill the White House looks forward to reviewing the full details of their agreement and supports the work of the tax-writing committees on the CTC and low-income housing.

Despite encouragement from the White House and at the committee level, lawmakers hardly think the tax deal is a lock.

“I hope people don’t try to tamper with it too much, because I think it will all just fall apart,” Cole said.