Connecting state and local government leaders
The measure restores some of the popular expanded child tax credit, as well as a credit that helps states build affordable housing.
This story was updated 2/1/24.
A wide bipartisan majority in the House Wednesday night sent to the Senate a measure that would give low-income families about $700 in child tax benefits and restore credits that would allow states to build more affordable housing.
The $78 billion tax package passed 357-70. It restores some of the popular expanded child tax credit, which cut the nation’s child poverty rate by nearly half before its expiration at the end of 2021. The measure also restores a 12.5% increase in low-income housing tax credits that Congress temporarily passed in 2018, but also went away in 2021. To win Republican support, the measure would increase research and development tax credits for businesses as well.
Notably absent from the measure, however, was an increase in the cap on state and local tax, or SALT, deductions—a change sought by both Democratic and Republican lawmakers in high-tax states in the Northeast and California, who argued the cap unfairly impacted their residents.
The 2017 federal tax overhaul imposed a $10,000 cap on SALT deductions, which can increase what some owe in federal taxes.
After the vote, eight Republicans from New York, Maryland and California introduced a bill that would raise the cap. New York Rep. Mike Lawler said in a statement Thursday that a floor vote was being “expedited” by Speaker MIke Johnson and Ways and Means Committee Chairman Jason Smith of Missouri. But when Lawler was asked if enough Republicans support the measure, he said, “We’re still working to get this to the floor and passed on the floor.”
The proposal by Lawler and other Republicans would double the cap for married parents to $20,000 making less than $500,000, retroactive to last year.
Removing the cap is a high priority for local leaders because it would mean more money in people’s pockets. Associations representing local governments have also said the cap makes it more politically difficult for localities to raise revenues.
The tax measure’s passage is still uncertain in the Senate, though it was negotiated by the Republican and Democratic chairmen of the House and Senate tax committees—Rep. Jason Smith of Missouri and Sen. Ron Wyden of Oregon. Asked at a press conference if the bill will have to be changed to pass the Senate, Democratic Majority Leader Charles Schumer, who supports the proposal, told reporters he is still working on how to move it forward.
The bill has largely been met with praise by state and local leaders for increasing the child tax and low-income housing credits.
Some conservatives, though, opposed increasing the aid, saying that illegal immigrants who have children born in the U.S. would be able to get the child tax credits, even though then-President Donald Trump allowed it when the credit was created during his administration.
“Its provisions would continue to expand the welfare state,” said Rep. Chip Roy, of Texas, who was one of 47 Republicans to vote against the measure.
“This is not a tax bill. It is a welfare bill in drag,” said Rep. Matt Gaetz of Florida.
Some Democrats also opposed the bill because the measure does not restore the full amount of the expanded child tax credits—the roughly $3,000 low-income households received during the pandemic.
“I can't support a bill that provides generous tax breaks to large corporations while offering minimal tax relief for working families,” said Rep. Linda Sanchez, a California Democrat, one of 23 who voted against the measure.
Rep. Suzan DelBene, a Washington Democrat, acknowledged that while “today's bill is imperfect, it does include policies I've championed,” including expanding the low-income housing tax credit.
State leaders are also cheering the restoration of a 12.5% increase in low-income housing tax credits through 2025. The deal would reduce to 30% the amount of a project that must be paid for with municipal bonds. Federal law now requires that half of the cost of building certain kinds of projects be paid for with municipal bonds.
The tax credit helps housing finance agencies to build affordable housing, and the bond financing allows developers access to lower financing costs of tax-exempt municipal bonds.
“We are facing an affordable housing crisis in this country,” said Rep. Darin LaHood, an Illinois Republican, in supporting the bill.
The National Low-Income Housing Coalition was disappointed the bill does not require a certain portion of the credits be required to build housing for those with the lowest incomes.
However, state housing directors like Lisa Vatske, director of multifamily housing and community facilities at the Washington State Housing Finance Commission, told Route Fifty earlier this month that the loss of the additional credits had reduced the number of homes it can help finance. Vatske estimated that restoring the credits will allow the state to build about 2,500 more units a year.