Key tax breaks left out of funding bill, clouding their future
Zachary Halaschak
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Efforts to expand the child tax credit and avoid losing a prized business tax break have been left out of the end-of-year funding bill, putting their future in doubt.
Democrats had hoped to use the so-called “omnibus” bill to increase the child tax credit after it was slashed back down to its current size when a massive temporary expansion expired last year.
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Democrats were trying to package the larger tax credit with the reinstatement of the full deduction for research and development (R&D) expenses in order to gain support from Republicans. That also appears to be on ice.
A top GOP aide confirmed to the Washington Examiner that both the tax credit expansion and the reinstatement of the full deduction for R&D expenses were left out of the draft text of the omnibus legislation.
While not including language to expand the child tax credit simply maintains the status quo of $2,000 a child, the business world was gunning hard for Congress to act on R&D deductions. If Congress doesn’t do anything, companies instead will have to amortize R&D expenses over five years — a provision included in the 2017 Tax Cuts and Jobs Act that offset some of the tax cuts.
The reversion has bipartisan support, as businesses have long had the ability to write off spending on R&D — a tax policy thought to boost innovation and economic growth. The change was even included in the failed Build Back Better legislation.
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But Democrats had tried to get concessions on child tax credit expansion in return, something that Republicans balked at because they didn’t see them as equitable trade-offs.
Starting this tax year, companies will have to amortize R&D expenses if Congress does not retroactively change the law — meaning that they will face a higher tax burden. That would be a significant change in policy given that fully deducting R&D expenses has been the norm in the U.S. since the 1950s.