Congress' New Tax Deal Clears a Big Hurdle

Congress' New Tax Deal Clears a Big Hurdle

By Yuval Rosenberg and Michael Rainey
Friday, January 19, 2024

Happy Friday! President Joe Biden today signed the stopgap spending bill that Congress passed yesterday, averting a partial government shutdown that would have otherwise started after midnight. The new law extends funding for government agencies into March, giving appropriators more time to try to negotiate the details of $1.66 trillion in discretionary spending for the fiscal year that started last October.

Here's what else is happening.

House Panel Overwhelmingly Advances Bipartisan Tax Deal

The House Ways and Means Committee voted 40-3 on Friday to advance a bipartisan, $78 billion plan to expand the child tax credit and restore a trio of expired or expiring business tax breaks.

The overwhelming support indicates that the bill has momentum behind it as it heads to the House floor for a vote expected to come after lawmakers return from a one-week recess.

“Today’s strong bipartisan vote in the Ways and Means Committee shows there is a path forward for Republicans and Democrats to come together and deliver tax relief for workers, families, farmers, and small businesses,” Ways and Means Chairman Jason Smith, a Republican from Missouri, said in a statement. “The Tax Relief for American Families and Workers Act will help America compete and win against countries like China, encourage small businesses to grow and invest in American jobs and opportunity, and save taxpayer dollars by ending a Covid-era policy that has become the poster child for fraud.”

The Covid-era policy Smith was referring to is the Employee Retention Tax Credit (ERTC). The accelerated deadline for claiming the credit, which would move from April 2025 to the end of this month, and the tougher enforcement required by the new bill would save nearly $79 billion over the next five years, according to an analysis by Congress’ Joint Committee on Taxation.

The bill’s easy passage out of committee doesn’t guarantee it will sail through the full House and Senate. “Some Democrats have complained that the package is too tilted toward business and that the child tax credit expansion is insufficient, meaning the party may be split on the floor,” Sahil Kapur and Scott Wong of NBC News note, adding that the three committee votes against the bill came from Democratic Reps. Lloyd Doggett of Texas, Gwen Moore of Wisconsin and Linda Sánchez of California.

Doggett complained about the balance struck in the compromise bill and about the potential long-term costs of the tax breaks if they are made permanent. “Doing it incrementally, while you intend for it to be permanent, ensures you never really show the true cost to the debt for unpaid tax breaks,” he said. “And it assures that you create the misimpression that children are being treated the same way as corporations, when in fact, under the Chairman’s numbers, children get $1 for every $4 for corporations. This is not a 50/50 split between children and corporate power. Once again, this Committee makes its priority clear, and it’s certainly not children.”

The Committee for a Responsible Federal Budget says that while the short-term costs of the bill are offset, the long-term costs could climb to about $650 billion over a decade “if arbitrary sunsets are abandoned and the policies are made permanent without further offsets.”

On the GOP side, Sen. Mike Crapo of Idaho, the top Republican on the Finance Committee, has already said he wants changes to the legislation. And some conservatives may still raise issues with the compromise. While the U.S. Chamber of Commerce strongly supports the bill and its restoration of the deduction for research and development expenses, 100% bonus depreciation and eased limitations on deducting business interest expenses, The Wall Street Journal’s right-leaning editorial board slammed the bill this week, claiming that it “contains bad tax and social policy” and that it “undermines the incentive to work.”

Rep. Richie Neal of Massachusetts, the top Ways and Means Democrat, told NBC News that the bill might still be changed to give Democrats “a more enhanced and robust child credit” and “to satisfy some qualms of Republicans in the Senate.”

The bottom line: We’ll have plenty more on the bill in the coming weeks, but Friday’s vote suggests the package could get through the House by the end of the month as lawmakers try to pass it in time for the tax filing season that starts January 29.

As Consumer Sentiment Surges, Are the Bad Vibes Healing?

It looks like ordinary Americans are finally starting to feel a little better about what economists say is a strong economy.

Consumer sentiment surged in January, according to a widely cited University of Michigan survey, which registered 78.8 in the first month of 2024, up 21.4% from a year ago and the highest reading since July 2021. The survey previously showed a big jump in December as well, and the two-month increase was the largest in over 30 years.

Survey respondents reported a positive outlook on the economy and less concern about inflation. “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” survey director Joanne Hsu said. “Sentiment has now risen nearly 60% above the all-time low measured in June of 2022 and is likely to provide some positive momentum for the economy.”

Consumers expect the inflation rate to be 2.9% this year, down two-tenths of a point from December and the lowest expectation reading since December 2020.

Economist Andrew Hunter of Capital Economics said the survey results are “another sign that the economy is on track for a soft landing,” per CNBC.

Good news for Biden? Although the indicators have been pretty good for some time now, the strength of the economy hasn’t translated to political support for President Joe Biden. Polls show that most voters blame Biden for whatever economic problems they have or may perceive, and voters say they trust Republicans more than Democrats — and former president Donald Trump more than the incumbent — when it comes to managing the economy.

Republicans have played up the negative sentiment that seemed to linger well into the post-pandemic recovery, likely driven by the persistence of inflation. “Bidenomics continues to cripple American families with historic prices,” the Republican National Committee recently said. And Biden’s poll numbers seem to reflect a general negative vibe on the economy.

But that may be changing now. The White House said Friday that Biden’s policies are “delivering results that more Americans are feeling.” And Biden’s top economic adviser Jared Bernstein said the president “is making progress lowering inflation while maintaining a strong job market. We have more work to do, but we’re on the right path.”

Even some conservative activists admit that the economic outlook is improving. “The economy has clearly gotten better over the last year … No doubt about that,” Stephen Moore, an adviser to Trump, told The Washington Post.

Still, some Biden supporters recommended caution. “There is still a debate on the internet about whether consumer sentiment is actually good, and we should listen to families who say they’re struggling,” Elizabeth Pancotti of the Groundwork Collaborative, a liberal think tank, told the Post. “But I think it’s clearly getting better and we’re on a pretty good path for November.”

Biden Forgives Another $4.9 Billion in Student Loan Debt

The Biden administration is canceling another batch of student loans with a total value of nearly $5 billion, the White House announced Friday.

The loan cancelations, which will affect about 74,000 Americans, target workers who participated in federal forgiveness and repayment programs that have been marred by errors and inaccuracies. Nearly 44,000 borrowers who were in the Public Service Loan Forgiveness program, which cancels debt for borrowers who work in fields like nursing and teaching for at least 10 years, will see their loans, totaling $3.2 billion, forgiven. Another 30,000 people who had been paying their loans for 20 years or more and qualified but did not benefit from income-driven repayment programs will also see their loans forgiven, totaling $1.7 billion.

“My Administration is able to deliver relief to these borrowers – and millions more – because of fixes we made to broken student loan programs that were preventing borrowers from getting relief they were entitled to under the law,” President Joe Biden said in a statement.

The latest round of debt forgiveness brings the Biden administration’s total for student loan relief to $136.6 billion, affecting 3.7 million people.

Why U.S. Drug Prices Are So High

You know that Americans pay more for prescription drugs than residents of other rich countries, but do you know why? In an article this week, Rebecca Robbins and Christina Jewett of The New York Times detailed six reasons:

1. There is no central negotiator willing to walk away.

2. There are no price controls.

3. The system creates perverse incentives.

4. The system is fragmented and complicated.

5. Patent gaming keeps prices high longer.

6. Drug prices are what the market will bear.

Read the full story at The New York Times.

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