Tax Bill Moves Forward, but Election-Year Politics Threaten Its Chances

The House is expected to give broad bipartisan approval on Wednesday to a $78 billion bill that would expand the child tax credit and restore a set of corporate tax breaks, a rare feat in an election year by a Congress that has labored to legislate.

But the measure still faces a fraught path to enactment amid political divides over who should benefit the most. The effort, which faces resistance from Senate Republicans and some members of the House in both parties, is a test of whether a divided Congress with painfully thin margins can buck the dysfunction of the Republican-led House, set aside electoral politics and deliver legislation that would contain victories for both parties.

“The Tax Relief for American Families and Workers Act is important bipartisan legislation to revive conservative pro-growth tax reform,” Speaker Mike Johnson said in a statement Wednesday. “This bottom-up process is a good example of how Congress is supposed to make law.”

The package would expand the child tax credit — though a version substantially scaled back from its pandemic-era level — and restore a set of business tax breaks related to research and development and capital expenses. Both would last through 2025. It also would bolster the low-income housing tax credit and extend tax benefits to disaster victims and Taiwanese companies and individuals.

The plan would be financed by curbing the employee retention tax credit, a pandemic-era measure meant to encourage employers to keep workers on payroll that has become a magnet for fraud.

Lawmakers in both parties regard it as a policy victory and a way to show voters they can actually accomplish something despite the chaos and turmoil that has come to define the Republican-led House.

“The majority of the country is really thirsty for us to do things in a bipartisan manner,” Representative Greg Murphy, Republican of North Carolina, said in an interview. “We’ve seen a lot of gridlock because some people really want to, basically, say no to everything. And I think we do need to move forward and actually show people that we can govern.”

But in a sign of the political hurdles complicating the bill’s path, Mr. Johnson is bringing it to the floor on Wednesday under special expedited procedures that require a two-thirds majority for passage. The maneuver allows him to steer around any Republicans who could otherwise have blocked the bill over their policy and political objections.

Senate Republicans also have sought to pump the brakes, in another indication of the political hurdles the package faces. The bill would be a win for President Biden and Democrats, who have made expanding the child tax credit a signature issue, including Senator Sherrod Brown of Ohio, who is up for re-election this year and is a key target for Republicans in November.

And a group of lawmakers from New York and other blue states with high tax rates are angry that the measure omits an increase they have sought to the cap on state and local tax deductions, known as SALT, which would benefit high earners. New York Republicans signaled their ire on Tuesday by briefly blocking a procedural measure in protest.

“The point, as has been made multiple times in this Congress, is obviously that there are strength in numbers,” said Representative Mike Lawler, who joined Representatives Anthony D’Esposito, Nick LaLota and Andrew Garbarino in defecting on the measure, only to switch their votes once their point had been made. “But for us that delivered the majority, this is the issue that matters.”

Mr. Johnson assuaged their concerns after a long night of meetings Tuesday by committing to move forward on SALT, according to a person familiar with the discussions who described them on the condition of anonymity. Another person, who also described the discussions on the condition of anonymity, said the expectation was that the speaker would move a measure that would double the cap on SALT deductions for married couples.

The package under consideration on Wednesday was brokered by the top two tax writers in Congress: Representative Jason Smith, Republican of Missouri and the chairman of the Ways and Means Committee, and Senator Ron Wyden, Democrat of Oregon and the chairman of the Finance Committee. It has the support of the White House, key leaders in both parties on Capitol Hill and a variety of rank-and-file members. It gained momentum after the Ways and Means Committee approved it on an overwhelmingly bipartisan basis in January.

Proponents point to that vote, and to how unlikely it had seemed for a tax deal to come together, as a good sign for its prospects.

“Something like 90 days ago, I think there was a general assessment that the cause of passing a bipartisan tax bill did not have a pulse,” Mr. Wyden said last week. “I mean, there was just no way.”

Republican proponents argue the business tax breaks are worth embracing, and have framed the child tax credit as a conservative win as well.

“The child tax credit reforms in this bill are pro-family policies that maintain the child tax credit structure of the Trump-era G.O.P. tax reform,” Mr. Smith said in a statement. “The child tax credit provisions in this bill help families crushed by inflation, remove the penalty for families with multiple children and maintains work requirements.”

And the bill’s supporters hope that a strong bipartisan vote out of the House will pressure Senate Republicans to drop their opposition.

“If it gets a really big vote,” Mr. Wyden said, “this does not become a traditional political D’s and R’s kind of debate. People are going to say, ‘We really need that money.’ It’s going to make a big difference.”

The legislation would make the $2,000-per-child credit more accessible to families with multiple children and gradually raise the cap on how much lower-income families could claim to match the amount for higher-income families. It would also automatically adjust the credit for inflation and allow parents to use their previous year’s earnings if it means they could receive a larger credit.

Right-wing Republicans have denounced the expansion, arguing that it would de-incentivize work. They have also objected to allowing undocumented immigrants who have U.S.-born children to receive the credit, for which they are eligible under current law.

“I’m not going to support something that expands the child tax credit, which is expanding the welfare state massively,” said Representative Bob Good, Republican of Virginia and chairman of the House Freedom Caucus. “And I’m not going to support child tax credit going to illegals. I think that’s incentivizing this illegal invasion, and we ought to stand united against it as the Republican Party.”

Progressive Democrats, on the other hand, have argued that the bill does not expand the tax credit enough and disproportionately benefits corporations. It falls far short of the pandemic-era version of the child tax credit, which deposited up to $3,600 per child in families’ bank accounts and helped to pull millions of children out of poverty.

“The tax deal fails on equity,” Representative Rosa DeLauro of Connecticut, the top Democrat on the Appropriations Committee said in a statement. “At a time when a majority of American voters believe tax on big corporations should be increased, there is no reason we should be providing corporations a tax cut while only giving families pennies.”