An agreement was reached this week to restore tax breaks for businesses and to increase child tax credit benefits for lower-income families. The deal was negotiated by Sen. Ron Wyden (D-OR), chairman of the Senate Finance Committee, and congressman Jason Smith (R-MI), chairman of the House Ways and Means Committee. The legislators say the bill would cost $78 billion.
That figure bears no relationship to reality.
Under the tentative agreement, the tax breaks and the expanded child tax credits would expire at the end of 2025. That early expiration date is the only reason why the cost is just $78 billion. Today, $78 billion is considered a small addition to the deficit. That is how far down the deficit spending hole we have fallen. But Congress does not like to allow tax benefits and any expansion of the welfare state to sunset.
As part of the 2017 Tax Cuts and Jobs Act, TCJA, the Republican-controlled Congress legislated that certain business tax provisions regarding accelerated depreciation, provisions for deducting business interest expenses and for expensing, not amortizing, research and development costs, expired at the end of 2023. The proposed bill would restore those tax benefits. As for the proposed more generous child tax credit provisions, the legislation would reinstitute a portion of the expanded child tax credit programs of the COVID era. Put simply, Congress likes to keep the gravy train rolling.
If the proposed provisions were to become law and were extended beyond 2025, which would be highly likely, the cost would run to $500 billion over a 10-year period.
That would be unconscionable. The federal deficit is already too high at 6-7% of gross domestic product in a full employment economy. Given the unsustainable trajectory of Social Security and Medicare spending, a reality cowardly ignored by former President Donald Trump, Gov. Ron DeSantis (R-FL), and President Joe Biden, federal deficits will increase even without the proposed legislation. Demographics are driving the deficit.
Higher deficits raise interest rates, discourage investment and make buying a home often unaffordable. Excessive government spending is a major cause of the current fight against high inflation. The expansion of the child tax credit would be bad policy. There are very few children living in true poverty. Almost all of those living in actual poverty are mentally ill. The United States has won the War on Poverty. A further expansion of the welfare state is unnecessary. Welfare is a disincentive to work.
A too-generous child tax credit undermines the traditional nuclear family, the bedrock of the nation.
Fortunately, final passage of the proposed legislation is unlikely at this time. Congress is preoccupied with funding the federal government and appropriating money for Israel, Ukraine, and the border. Still, we shouldn’t excuse poor policy even where it has the appearance of bearing bipartisan sense.