CHN: Senate Rejects Bill With Child Tax Credit Improvements

On June 10, the Senate failed to muster the 60 votes needed to invoke cloture and cut off debate on the Renewal Energy and Job Creation Action (H.R. 6049).  The bill, which passed the House three weeks earlier, extends dozens of temporary tax cuts (so-called ‘extenders’) that had expired, adds new energy-related tax credits, and provides a more generous refundable Child Tax Credit for low-income working families.  See Human Needs Report for May 23 for more details.
The House fully covered the costs with two revenue-raising offsets.  One would prevent certain executives and some hedge fund managers from delaying taxes on compensation by using offshore arrangements.  The second would delay implementation of rules that give multinational corporations more flexibility in how they allocate interest expenses.  The Senate’s resistance to the bill is based on unbending Republican opposition to paying for the tax cuts with offsetting revenue increases.  Many in the business community have signaled a willingness to accept the offsets because they are anxious for the enactment of the tax benefits in the package including the research and development tax credit, favorable tax treatment on retail business improvements, and the new markets tax credit.  H.R. 6049 also includes new energy tax credits.

If the Senate had moved forward with the legislation, Senate Finance Committee Chairman Baucus (D-MT) was prepared to offer a substitute bill.  His bill includes the House provisions while adding more tax breaks for business and an unpaid-for Alternative Minimum Tax (AMT) ‘fix.’ This repair would keep additional individual taxpayers from being subject to the higher AMT rates.  Deeply disappointing to low-income advocates was the change Senator Baucus’ substitute makes to the refundable Child Tax Credit.

The refundable Child Tax Credit allows working poor families to receive a tax refund based on 15 percent of their earnings beyond a certain threshold, currently $12,050, even if their incomes are too low to owe federal income taxes.  When the refundable credit was established in 2001, minimum earning was set at $10,000, but it was also indexed for inflation, resulting in annual increases to the threshold.  H.R. 6049 sets the threshold at $8,500 and removes the inflation adjustment.  The Baucus’s substitute provides less help to poor families by setting minimum earnings at $10,000.  The Baucus substitute amounts to a loss of $225 for each qualifying low-income family.  Maintaining the $8,500 threshold would cost an additional $1.3 billion.  The substitute balked at this relatively modest cost, but includes at least $24 billion in business tax breaks and $61 billion for an AMT ‘fix’ providing thousands of dollars in benefits to those with incomes at or above $100,000.

Senate Majority Leader Reid (D-NV) has filed another cloture motion to proceed with H.R. 6049, setting up a vote for June 16.  This comes as the House sent a letter to Senator Reid and Senate Minority Leader McConnell (R-KY) signed by 150 Democrats indicating that they will not vote for an extenders bill that is not paid for by offsetting revenues or savings.  This sets up a fight between the House and Senate over offsets.  In the meantime, the House has indicated that it will move to pass a separate AMT bill whose costs are covered.  Most agree that in the end Congress will pass another temporary AMT repair this year without paying the cost.  The outcome of the extenders bill is less certain.

tax policy