Hopes fade for year-end tax deal in congress to aid companies, children

Republicans and many companies want to reverse, prevent or delay some tax increases on businesses that were scheduled in a GOP-backed 2017 tax law and that began taking effect this year. Democrats, who control the House and Senate, have expressed openness to some changes, but they want to expand the child tax credit at the same time.

With just a few weeks remaining before the new Congress starts Jan. 3, key members of Congress haven’t agreed to any such deal, lawmakers and aides said. And even if they do reach an agreement, it would likely need to be included in a broad federal-spending package—which also is stalled.

Barring a last-minute breakthrough, many businesses will face higher taxes because of changes to how they can deduct research costs and interest expenses. For families, the child tax credit would remain at its current levels, without reinstating temporary expansions that Democrats implemented in 2021. Those changes expired at the end of last year.

Discussions are continuing, Senate Finance Committee Chairman Ron Wyden (D., Ore.) said recently. Waiting until next year, with Republicans taking control of the House and Democrats retaining their Senate majority, wouldn’t necessarily resolve any of the obstacles.

“The longer you pass on opportunities to solve problems, the bigger, the deeper the ditch you’re in," he said. “When you really want to do something, you often can find a way."

The interest in a tax bill stems from the way Republicans constructed the 2017 tax law. To help pay for a corporate-tax-rate cut, they scheduled three revenue-raising changes to take effect later.

Starting this year, businesses must spread their research costs over many years rather than deducting them immediately. That shifts tax revenue from the future to the present.

Tighter limits on interest deductions also took effect this year. And starting in January, full deductions won’t be available for capital investments.

The research change has drawn the most intense corporate interest, including concern from companies such as Lockheed Martin Corp., Netflix Inc. and Cisco Systems Inc.

Many Democrats, citing the benefits of encouraging American innovation and research, have joined Republicans in support of delaying or reversing the research-expense change. But some Democrats have said they shouldn’t resolve a problem created when Republicans controlled the House, Senate and White House without getting something for it.

“Our ask is simple: If we can provide tax cuts for America’s corporations, we can certainly provide a tax cut for America’s kids," said Rep. Rosa DeLauro (D., Conn.), who chairs the House Appropriations Committee and is a leading child-tax-credit advocate.

Ms. DeLauro, the Biden administration and others would pair business tax breaks with an expansion of the child tax credit. The credit still exists, but an expanded version Democrats created during the Covid-19 pandemic, which had monthly payments and no family-income requirement, expired at the end of 2021.

Democrats would prefer the 2021 version of the credit, and they would like it to be permanent. But some said they are open to a more modest, temporary expansion. Sen. Michael Bennet (D., Colo.), a key child-credit supporter, said he is focused on the 19 million children whose families don’t get the full credit because of minimum-income requirements.

“My goal is to cover as many of them as possible, and I am open-minded about how to do that," he said.

But talks about tailoring that child-credit expansion haven’t advanced either.

“It’s late," said Sen. Pat Toomey (R., Pa.). “And I don’t know what they have in mind."

Sen. John Thune (R., S.D.) said Republicans want to extend the expiring business provisions, but “the Democrats always have a ransom."

Lawmakers are more optimistic about attaching retirement-savings legislation to a must-pass spending bill. That measure would increase the minimum age for required distributions from tax-deferred accounts. It would also expand a savings tax credit for lower-income households.

The House passed one version, and the Senate Finance Committee advanced another. Lawmakers are confident they can reach a compromise. It is likely to include the Senate’s refundable version of the savings credit for lower-income people, making that available to households without income-tax liability, said Sen. Ben Cardin (D., Md.), one of the Senate’s leading advocates for expanding retirement savings options.

The retirement legislation could include an attempt to curb syndicated conservation easements, aggressive tax deals that the Internal Revenue Service has been attacking for years. The Senate retirement bill included conservation-easement language that would limit certain deductions. Rep. Kevin Brady (R., Texas), the top House GOP tax writer, said there were positive discussions about including that provision in a House-Senate agreement.

This story has been published from a wire agency feed without modifications to the text