The House of Representatives passed a bipartisan tax bill that will shift businesses’ tax obligations when they file their 2023 returns. After months of bipartisan negotiations, House Ways and Means Chair Jason Smith (R-MO) and Senate Finance Chair Ron Wyden (D-OR) released the text of H.R. 7024, the Tax Relief for American Families and Workers Act of 2024, just last week. The bill passed the House 357 to 70 under a process known as “suspension of the rules,” indicating strong bipartisan support. Now, the bill goes to the U.S. Senate, where leaders hope that bipartisan support will carry the bill into law before taxpayers must submit their returns this spring. What’s in the Bill: The bill is a compromise of tax priorities between both Democrats and Republicans: it would revive and expand the Child Tax Credit for low-income families from $1,600 to $2,000 until the end of 2025, as well as expand the Low-Income Housing Credit (LIHC) to states. The bill would also revive several long-sought business tax breaks. Notably, the bill:
- Restores and extends 100% bonus depreciation for qualified equipment and property purchases through 2025.
- Revives the expired rule allowing R&D costs to be immediately and fully deducted rather than spread across five years. The break would be applied retroactively through 2022-2023 and extended through 2025.
- Increase the amount of investment that a small business can immediately write off to $1.29 million, an increase above the $1 million cap enacted in 2017, per a committee summary. These deductions will increase in the future according to inflation.
- Return to a 30% limit in business deductions for net interest expense through 2025. This 30% deduction would also be based on EBITDA (earnings before interest, taxes, depreciation, and amortization) rather than the EBIT (earnings before interest and taxes) limit implemented in 2022.
Reinstating the popular deduction process for U.S.-based R&D comes at a time when the U.S. government is trying to revamp domestic investments in innovation. Businesses of all sizes can benefit from this provision, hopefully causing a surge in R&D to keep up with competitors such as China. “The ability for businesses in the defense industry to immediately deduct U.S. based R&D costs is a significant step to ensure the United States remains ahead of our adversaries in military capabilities,” said Erik Berdy, Partner and Chair of Michael Best Strategies’ Defense & National Security Practice. "This no doubt will encourage our defense companies to continue to innovate, develop and produce the equipment and technologies that our warfighters need to defend America, deter aggression and if necessary, win in future conflict."
An Uphill Battle: The bill cleared the House despite notable opposition in both parties. House Freedom Caucus Chair Bob Good (R-VA) told Politico “[he wasn’t] going to support something that expands the Child Tax Credit, which is expanding the welfare state massively,” adding that expanding the credit would incentivize illegal entry into the United States. Several New York-based Republicans also threatened to derail House action if leaders did not add an increase in the state and local tax deduction (SALT) to the package. These members ultimately settled for a standalone vote on a SALT-related bill in exchange for their support of H.R. 7024. Still more Republicans expressed concerns about the costs of extending these tax breaks or offering Democratic opponents credit for an accomplishment ahead of an election year. Progressive Democrats also expressed reservations: House Appropriations Ranking Member Rosa DeLauro (D-CT) argued the new bill “delivers huge tax cuts for giant corporations while denying middle class families the economic security they had under the expanded, monthly Child Tax Credit.”
The policy reforms will be paid for by cutting off a COVID-era tax break, the Employee Retention Tax Credit, which helped businesses retain employees during the pandemic. While businesses originally had until April 2025 to claim the tax credit, the new legislation will end the credit immediately when President Biden signs it into law, taking it off the table for this tax season.
What’s Next?: The bill heads to the Senate, where the chamber is hopeful of having a vote soon. Senate Majority Leader Chuck Schumer (D-NY) supports the package, particularly for its low-income housing credit expansion and child tax credit expansion. Ranking member of the Senate Finance Committee Republican Mike Crapo (R-ID) has been generally supportive of the endeavor, but he has not openly backed the legislation. General support for the tax bill in the Senate remains unclear.
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