According to the Bloomberg report, U.S. lawmakers are discussing a potential deal to provide $70 billion worth of tax breaks for businesses and families. It includes restarting expired business tax breaks and boosting the child tax credit, which can provide an unpredictable fiscal boost to the U.S. economy (Jan. 14, 2024).
However, the proposal’s passage is not confirmed, as Republicans and Democrats continue to deal amidst a deeply divided Congress, according to the report.
The report said that if the proposed tax breaks are passed, they could provide a double-edged sword for the economy. On the one hand, the extra cash would boost customer spending, potentially boosting economic growth.
However, economists have noted that this could also reignite inflationary stress, confusing the Federal Reserve’s power to lower interest rates in 2024.
The final details of the agreement and how the tax breaks will be structured will play a crucial role in determining their impact on the economy, per the report.
While the tax breaks can boost the economy, some analysts say that they may not encourage additional corporate investment, according to the report.
The proposed deal includes:
- Reviving tax breaks for research and development (R&D) spending.
- Boosting the deductibility of investment in equipment.
- Business loans.
However, concerns have been raised that the fiscal cost of these measures may generate little new investment, particularly when inflation pressures are still present.
The report said that the proposed tax breaks could prove to be a political win for President Joe Biden, whose poll numbers have been affected by voter anxiety over the economy. The boost of the child tax credit, in particular, has been emphasized as a powerful tool in reducing child poverty.
However, there are ongoing debates among lawmakers over the proposal’s details, including the state-and-local tax deduction cap, the low-income housing tax credit, and the child tax credit itself, per the report.
Restoring the child tax credit would add more cash to the pockets of parents at a time when PYMNTS Intelligence found that 66% of households with children are living paycheck to paycheck.
About 44% of those with children under 18 in the household are living paycheck to paycheck without issues paying bills, while about 23% are living paycheck to paycheck with issues paying bills, according to “New Reality Check: The Paycheck-to-Paycheck Report: The Household Finances Deep Dive Edition,” a PYMNTS and LendingClub collaboration.
