State of Play for Passing a Year-End Tax Bill

A crowded legislative agenda could push passing a year-end tax bill off the lame duck to-do list.

There are (at least) two reasons for why a year-end tax bill could be tabled into next year.

Reason one: Time

Tax staffers before the Thanksgiving holiday said that discussions on a year-end tax bill had yet to begin. This means that negotiations on the legislation are essentially at square-one. Getting a tax bill up-to-speed will likely require a lot of time that staffers may not have. 

Case in point, Congress has roughly two weeks to figure out how to fund the federal government beyond December 16^th – the date that current funding expires. This is a must-pass bill and passage will require the support from both political parties.

Because of the legislation's importance, lawmakers from both political parties want to attach their pet provisions to it. But many of these measures are not supported by members in both political parties. Hashing-out those differences so that they can be included in the spending bill will take time away from preparing a year-end tax bill.

Also, legislation averting a rail strike could lessen time to work on a year-end tax bill.

Reason Two: Disagreement

There is political disagreement over expanding the Child Tax Credit (CTC) to what is was in 2021.

By and large, one political party supports this expansion while the other party does not.

The party supporting a CTC expansion says that it would reduce childhood poverty. Many in this party have also threatened to oppose the extension or modification of business tax breaks if the CTC measure is absent from a year-end tax package.

Lawmakers opposing the CTC expansion contend it is too expensive (costing roughly $1 trillion over a ten-year period, according to the Joint Committee on Taxation), and that increasing payments to families would exacerbate inflation.

The disagreement between the political parties over this issue has existed for months, and it has not abated since the elections.

If there is no agreement on this issue between the political parties, it is hard to see how Congress passes a year-end tax bill.

Polling to the Rescue?

Recent polling by Morning Consult found broad, bipartisan support among voters for expanding the CTC.

From the poll:

There is bipartisan agreement that expanding the Child Tax Credit should come before tax breaks. Over four-in-five (85%) parents who voted for a Democrat in 2022 agree with lawmakers who say Congress shouldn't pass any more tax breaks for wealthy corporations until it acts to reinstate the expanded Child Tax Credit -- the majority of parents who voted for Republicans in 2022 agree as well (67%).

It is not clear if this poll will sway lawmakers who currently oppose a CTC expansion into supporting it. But lawmakers in the “no” category have stated that there must be reciprocity for the Child Tax Credit to be modified.

This means if a CTC expansion costs $1 trillion, then there also must be $1 trillion in business tax breaks. Lawmakers point to allowing for R&D expensing, expanding the 163(j) interest deduction, and returning bonus depreciation to full strength. Modifying all three of these provisions wouldn’t equal $1 trillion over ten years, according to the Joint Committee on Taxation. So other business tax measures would need to be included in this trade off.

However, passing a $2 trillion year-end tax bill would be eye-popping, if not outrageous. It is hard to imagine any lawmaker – in either party – supporting it.

Bottom Line:

Reaching an agreement on this issue will likely depend on scaling back the CTC expansion and allowing some business tax breaks to be modified or extended. However, these negotiations would require time that Congress might not have to give.

Important to note: Retirement legislation that includes tax provisions is a different bill. It currently has a better chance for passing Congress in the lame duck than a year-end tax bill.