Five Things to Know About the Bipartisan Tax Deal

Senate Finance Chairman Ron Wyden (D-OR) and House Ways and Means Chairman Jason Smith (R-MO) have announced a bipartisan tax agreement. Here are a few things to know about it:

• A Long Overdue Correction to the Tax Treatment of R&D: The agreement restores full and immediate expensing for businesses’ research and development expenditures, undoing the five-year amortization requirement that took effect in 2022. It also makes R&D expensing retroactive to investments made from 2022 through 2025. These changes incentivize business investments that enhance productivity and grow the economy. Read more about the importance of R&D expensing here.
• Child Tax Credit Expansions That Support Low-Income Families and Retain Work Incentives: The deal makes important, targeted expansions to the CTC by enhancing its refundability—the portion of the credit available to parents even when they have no federal tax liability. This should help low- and middle-income working parents. It also retains work incentives, such as the earned-income phase-in. Read more about the difference between refundability and earnings/work requirements here and what’s included in the deal here.
• Bipartisan Expansion of the Low-Income Housing Tax Credit (LIHTC): The agreement increases LIHTC allocations available to states and reduces the amount of bond financing needed to access credits, two of BPC’s long-standing recommendations to strengthen the credit and increase the supply of rental homes affordable to low-income families. These policies are an important first step in responding to America’s housing affordability crisis.
• Includes Responsible Offsets: It is encouraging to see lawmakers offer a substantial offset: extending the statute of limitations for the IRS to pursue fraudulent or erroneous claims of the Employee Retention Tax Credit (ERTC) and prohibiting new claims after January 2024. Although the credit helped business owners weather the pandemic, it has been subject to fraudulent claims due to aggressive marketing. As lawmakers look to the trillions of dollars in tax cut expirations next year, they must put fiscal responsibility front and center. Read more about the interaction between tax and fiscal policy here.
• First Major Bipartisan Tax Deal Since December 2020: Since late 2021, lawmakers have attempted several times to expand the CTC and address business tax expirations from the 2017 Tax Cuts and Jobs Act (TCJA). Today’s agreement on those and other tax provisions sets a positive tone for 2025 when the two parties must negotiate over trillions of dollars in expiring tax cuts. Read more about the evolution of the tax talks here.