Senior lawmakers recently unveiled a $78 billion bipartisan tax agreement that includes retroactive boosts to the child tax credit, potentially impacting families filing their tax returns this season. The proposed legislation, while promising, still faces hurdles that could impede its implementation.

Under the plan, which applies retroactively to 2023, the child tax credit will be expanded through various measures, including broadening access to the credit, increasing the refundable amount, and incorporating future inflation adjustments. Additionally, the proposal seeks to restore expired business tax breaks. House Ways and Means Committee Chairman Jason Smith and Senate Finance Committee Chairman Ron Wyden released an outline of the plan, with Wyden expressing his determination to pass it in time for families and businesses to benefit during the upcoming tax filing season.

Although the proposed changes are less generous compared to the enhanced child tax credit implemented during the Covid-19 pandemic, they still offer significant improvements. For the tax year 2023, the maximum refundable tax break per child would increase to $1,800, surpassing the current limit of $1,600. Subsequent years would see further increases, with the limit reaching $1,900 in 2024 and $2,000 in 2025, alongside inflation adjustments.

Moreover, the new law aims to expand eligibility for the refundable credit, particularly for larger families, and allows taxpayers to utilize the previous year’s earnings to calculate their maximum credit if their income declines in 2024 or 2025. These measures are intended to provide substantial relief to millions of low-income families, addressing the significant rise in childhood poverty experienced in the United States since the expiration of pandemic relief measures.

Projected Impact and Urgency of Enactment

According to projections from the Center on Budget and Policy Priorities, if the proposed legislation is enacted, approximately 16 million children in low-income families would benefit during its first year. This highlights the potential positive impact the changes could have on reducing childhood poverty.

However, there is an urgent need to pass the legislation promptly due to proposed retroactive changes for the 2023 tax year. The opening of the tax season on January 29th adds additional pressure to ensure the enactment of the bill. Despite this urgency, passing the legislation as a stand-alone bill may face challenges considering other priority issues, further increasing the risk of delays or even potential failure.

Lawmakers currently face two fiscal-year 2024 deadlines to pass spending bills and avoid a partial government shutdown, with the first deadline rapidly approaching on January 19th. This creates a complex legislative landscape, with limited avenues available to pass the tax agreement. The competing priorities and time constraints increase the risk of the proposal being overshadowed by other concerns or potentially abandoned altogether.

Garrett Watson, a senior policy analyst and modeling manager at the Tax Foundation, emphasizes the slim time frame available, even in the best-case scenario. This further underscores the considerable challenges that lie ahead for the legislation’s successful passage.

The $78 billion bipartisan tax agreement, offering retroactive boosts to the child tax credit, presents a promising opportunity to alleviate the financial burden on low-income families and address the increasing rates of childhood poverty. However, the proposed legislation faces significant hurdles that could impede its enactment. With limited time and competing priorities, lawmakers need to navigate a complex legislative landscape to ensure the successful passage of this critical tax agreement.


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