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Biden Pitches Tax Credit Expansions in COVID-19 Relief Package

Posted on Jan. 15, 2021

President-elect Joe Biden is pushing for major expansions of the child tax credit and the earned income tax credit as part of a newly unveiled coronavirus relief package, but he may have trouble getting Republicans on board.

Biden’s plan, released January 14, calls for temporarily boosting the child tax credit from $2,000 to $3,000 per child, or as high as $3,600 for children under age 6. It would also make the credit fully refundable for 2021, as well as bump the age of eligibility for a child from 16 to 17 during this period.

Biden is seeking to temporarily raise the maximum earned income tax credit for childless adults from $530 to roughly $1,500, along with making other tweaks to the provision, such as raising the income limit for the credit to approximately $21,000.

The plan also calls for a one-year boost in the tax credit for child and dependent care costs so families can receive up to $4,000 for one child or $8,000 for two or more children, up from the current maximums of $3,000 and $6,000, respectively. The plan envisions making that credit temporarily refundable and raising the maximum reimbursement rate to 50 percent for families earning under $125,000, with phased-out reimbursement rates above that threshold.

Biden proposes increasing the value of the premium tax credit as a way to lower or eliminate healthcare premiums and calls for building on the paid leave provision enacted as part of the Families First Coronavirus Response Act (P.L. 116-127), which provides a refundable tax credit to employers providing paid leave to employees.

Lawmakers partially extended that provision through March 31 in the December 2020 relief package (P.L. 116-260), but they dropped the requirement that employers provide the leave. Biden proposes to further extend that provision through the end of September and make it mandatory again for employers to offer paid leave for coronavirus-related causes.

The proposed relief package would also offer an additional $1,400 relief check per person, on top of the $600 enacted in the December law, to be distributed by the IRS.

Senate Finance Committee ranking member Ron Wyden, D-Ore., praised the plan in a January 14 statement, remarking that it “reflects the severity of these crises, and meets the urgent needs of the American people,” and that he looks forward to “taking the lead” on the proposal.

House Ways and Means Committee Chair Richard E. Neal, D-Mass., said in a release that the plan “recognizes that while we hope the end of this crisis is near, for many, the struggle is only getting worse and more help is needed.”

One notable omission from the relief bill: relief from the Tax Cuts and Jobs Act’s cap on the state and local tax deduction. Jonathan Traub of Deloitte Tax LLP told Tax Notes that he was ”a little surprised” not to see that included in Biden’s wish list, given that it’s a “COVID-adjacent policy that affects states hard hit by it.”

Nancy’s Turn

For Traub, it’s apparent that Biden’s plan is unlikely to be a bipartisan affair.

“I see no real plausible path for this to get 60 votes in the Senate,” Traub said, noting that the bill includes provisions that would be anathema to most Republicans, like a $15 minimum wage.

Wyden acknowledged as much in his statement: “If you’ve lost your job through no fault of your own, your ability to eat shouldn’t depend on Senate Republicans.”

That leaves Democrats with the option of moving the relief package through the budget reconciliation process, which would allow them to bypass the Senate filibuster and pass revenue-raising or spending proposals through a simple majority vote in each chamber.

According to Traub, the tax provisions Biden outlined should have no trouble passing muster with the reconciliation process’s arcane rules, but to move the relief package as a whole in a reconciliation bill would be a challenge and would force Democrats to get creative to figure out ways to make other major provisions reconciliation-compliant. Some provisions, like the $15 minimum wage, would likely get struck down, he said.

“This will be an early test of whether Democrats can really keep all their members in the Senate together and almost all their members in the House together,” Traub said. “Both chambers have fairly diverged caucuses within the Democratic Party. . . . Getting all 50 and 218 is going to be a challenge,” he said.

“There are graveyards full of people who have bet against Nancy Pelosi, but this may be her biggest test ever,” Traub added.

Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.

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