USD$80B Tax Deal Has Unclear Pathway Through Gridlocked Congress

Congressional negotiators have reached a deal on a roughly USD$80 billion package which would expand child tax credits and reverse restrictions on three business tax breaks. The framework also includes enhanced subsidies for affordable housing and provides tax relief to Taiwanese semiconductor companies operating in the US.

• Politico notes: “...the plan would be paid for by cracking down on the troubled Employee Retention Credit created during the pandemic to combat layoffs.”
• Bloomberg notes: "If passed, the tax breaks offer a double-edged sword for [the] economy... While the extra cash would boost consumer spending, it would also risk reigniting inflation pressures — complicating prospects for the Federal Reserve to lower interest rates this year, economists warned."
• Although there is a framework in place, the package has an unclear pathway through a Congress which remains riven by partisan disputes. There is unlikely to be sufficient time to include the agreement on this week’s Continuing Resolution to fund the government but may be attached to FY2024 bills in March.
• The package may also be subject to backlash from conservative Republicans who are expected to be wary of authorising additional spending in light in this week's CR, seen as failing to sufficiently address conservative concerns on spending or the deficit.