Biden Tax Credit Proposals Could Gain Traction in Split Congress

A Democratic president-elect and rising economic pressure on the working class are buoying hopes that family-focused tax credits could be expanded by the next Congress, no matter who ends up in control of the Senate.

President-Elect Joe Biden’s campaign tax plan included proposals to temporarily expand the Child Tax Credit, boost the Child and Dependent Care Tax Credit as a way to help cover child care costs, and allow people 65 and older to receive the Earned Income Tax Credit.

House Ways and Means Chairman Richard Neal (D-Mass.) is promising to press forward on all three credits in future discussions about pandemic-related aid.

“If you are talking about tax relief, let’s get some tax relief to the lower end of the economic scale,” Neal told Bloomberg Tax in a Nov. 9 interview.

While Biden’s tax proposals to reverse Republican-led cuts to the corporate tax rate and estate tax would face an uphill battle in a potentially divided Congress, lawmakers could find common ground on the popular tax credits. Republicans were behind the most recent expansion of the Child Tax Credit, which occurred in the 2017 tax law, and two Republican senators indicated to Bloomberg Tax that they are interested in building on that effort.

While bipartisan support for these family tax credits makes them candidates for inclusion in a larger legislative package, cost could be an issue, said Rohit Kumar, a former top aide to Senate Majority Leader Mitch McConnell (R-Ky.).

“The stumbling block will be how large is the measure relative to the tolerance for additional deficit spending,” Kumar, now a principal and leader of PwC’s Washington National Tax Services Tax Policy Group. “As we saw this summer with the Covid-19 talks, there is a limit to how much deficit spending can pass the Senate.”

Pandemic Relief Measure

Supporters of expanding the family tax credits are touting the policies as a way to help those who have lost income due to the Covid-19 pandemic.

Biden’s Child Tax Credit proposal mirrors a bill (H.R. 1560) introduced in March 2019 by Reps. Rosa DeLauro (D-Conn.) and Suzan DelBene (D-Wash.). The proposal, which was included in a House-passed coronavirus relief package (H.R. 6800) that stalled in the Senate, would make the credit fully refundable, raise the maximum payment to $3,000 for children six and older and to $3,600 for younger children.

DelBene said in an email that the proposal would cut childhood poverty by two-fifths and Black childhood poverty in half.

“This is also a powerful way to deliver relief to families during the current pandemic,” she said. “We think of tax credits as something that comes when you file your taxes but a key piece of our plan is making the credit refundable, meaning monthly payments to help families buy groceries, pay rent, and afford childcare right now.”

Sens. Marco Rubio (R-Fla.) and Mike Lee (R-Utah) were behind the most recent enhancement of the Child Tax Credit. They pushed for provisions in the 2017 tax law that doubled the credit to $2,000, while making it refundable up to $1,400. The credit is available for children under 17.

Rubio and Lee both seem ready to do more: a Rubio spokesman told Bloomberg Tax that the senator is always looking for opportunities to build on that credit expansion, while Lee pledged his backing in a statement provided to Bloomberg Tax.

“The child tax credit has overwhelming bipartisan support for a reason,” Lee said. “Whoever controls the White House, the House, and the Senate, anyone who wants to increase the CTC will have my support.”

The current structure of the credit means roughly one out of every three kids don’t qualify for the maximum amount because their families don’t earn enough, according to David Harris, president of the Children’s Research and Education Institute.

“That’s a big chunk of the country and includes substantial proportions of kids in every district,” Harris said.

ETIC Expansion

The Biden campaign also proposed to expand the Earned Income Tax Credit to those over 65. The EITC allows working families with income below a certain income threshold to receive a refundable tax credit. Biden’s plan would apply for 2021, and as long as “economic conditions require” it beyond that.

The current policy, which bars retirement-age people from receiving the credit, puts older workers at a disadvantage, according to the Biden campaign.

Some see Biden’s proposal as modest compared to legislation (H.R. 3300) advanced by the House Ways and Means Committee in February. That proposal, introduced by Neal, would lower the minimum age to claim the EITC credit to 19 from 25 for childless families and raise the maximum credit available to taxpayers with no qualifying children.

Chuck Marr, senior director of federal tax policy at the Center on Budget and Policy Priorities, said he could see some Republican support developing for an EITC expansion because their constituents would also benefit from an expansion

“If you dig into the numbers for rural areas, the provision that’s in the HEROES Act, about one in four rural childless adults would benefit,” Marr said. “That’s an entry point there.”

Neal also expressed interest in working to extend the Child and Dependent Care Tax Credit, which covers child care expenses for parents who work or are actively looking for work.

Biden’s proposal would expand the maximum credit to $8,000, up from the current maximum of $3,000 for one qualifying individual and $6,000 for joint filers.

“We have a real challenge now because of the number of women who have not been able to go back to work because of the childcare issue,” Neal said.

—With assistance from Colleen Murphy.