The Senate rejected a bill on Thursday that would have restored lapsed tax breaks for businesses and expanded the child tax credit, as many Republicans in the chamber lined up against the bipartisan deal in hopes of gaining an advantage in bigger tax legislation expected next year.
The roughly $80 billion bill had seemed to have everything. It soared through the House earlier this year with broad bipartisan support, a rare feat. Business groups loved it and hoped Congress would again allow companies to immediately deduct the full cost of capital investments and research expenses from their tax bills. And anti-poverty activists cheered its expansion of federal support for parents with children.
But the effort — spearheaded by Representative Jason Smith, Republican of Missouri and the Ways and Means Committee chairman, and Senator Ron Wyden, Democrat of Oregon and the Finance Committee chairman — still ran aground in the Senate. Republicans senators worried that the bill’s expansion of the child tax credit veered into creating a new welfare program, stalling the legislation.
Though Republican opposition doomed the bill’s fate months ago, Senator Chuck Schumer, the New York Democrat and majority leader, brought it up for a procedural vote on Thursday. The vote failed 48 to 44, falling short of the 60 votes needed to advance. Three Republicans joined Democrats in favor of the bill, while two independents who caucus with Democrats — Senator Joe Manchin III of West Virginia and Senator Bernie Sanders of Vermont — opposed it. Mr. Schumer also ultimately voted against the bill, a decision that allows him to potentially bring it back up for another vote.
With the procedural vote, top Democrats saw an opportunity to score political points in an election year. They hammered Republicans for opposing changes that would give more low-income families access to the child tax credit and make it more valuable for parents with multiple children.
Senator JD Vance, an Ohio Republican and the party’s vice-presidential nominee, has recently come under fire for past comments criticizing “childless cat ladies.” While Mr. Vance has walked back some of those comments, he has continued to argue that Democrats have pursued anti-family policies.
“Senate Republicans love to say they care about families, yet it seems like most of them will block a bill that expands the child tax credit, lifts half a million kids out of poverty and expands benefits to 16 million children,” Mr. Schumer said on Wednesday before the vote. Mr. Vance did not vote Thursday.
The attempt to pass the tax bill was also a dry run for a broader tax debate that Congress will undertake next year. Many tax cuts approved by former President Donald J. Trump and a Republican Congress in 2017, including measures like lower marginal income tax rates and a bigger standard deduction, will expire after 2025. Letting those and other measures expire could raise taxes on millions of American households, and lawmakers in both parties are already working on ways to renew many of the cuts before the deadline.
Top Senate Republicans reasoned that they may be in a better negotiating position after November’s election, when they could win control of the chamber. They chose to hold out on the House-approved bill and plan on addressing the business tax breaks later.
“I think we can do better next year,” said Senator John Cornyn, Republican of Texas.
Still, the decision was a disappointment to many business lobbyists. The tax breaks they sought had lapsed under provisions in the 2017 tax law; Republicans ended them as a way to contain the cost of that legislation. Because the tax breaks incentivize investment and scientific research, they are largely uncontroversial and were expected to be reinstated.
“The prolonged uncertainty surrounding the extension of these policies has curtailed American businesses’ ability to invest, compete and grow, and we urge Congress to find a path to restoring them this year,” said Watson McLeish, the senior vice president for tax policy at the U.S. Chamber of Commerce.
The legislation would have expanded a tax credit aimed at bolstering the supply of low-income housing, provided tax relief to disaster victims and laid the groundwork for a bilateral tax agreement with Taiwan.
Lawmakers had sought to cover the cost of the tax breaks by effectively shutting down a fraud-riddled program from the pandemic, the employee retention tax credit. Intended to be an incentive for companies to keep employees on payroll during the worst of Covid-19, the retention credit has instead become a magnet for bogus claims. By September, the federal government had spent nearly $230 billion on refunds for the credit, far beyond the estimated cost of $55 billion.
The Internal Revenue Service has frozen new claims for the credit for months in an attempt to address abuse of the program. The bill in the Senate on Thursday would have rejected all claims made after Jan. 31, 2024, helping generate $80 billion in estimated savings.
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