It seems the fad about presenting concern about the deficit has passed. Not even a month after the final passage of the Inflation Reduction Act (IRA) that was so trumpeted by the White House as fiscally responsible, the federal government has already more than undone whatever deficit reduction the IRA may have offered — and is planning new deficit spending besides.
Back in 2021, Congress passed a temporary expansion to the Child Tax Credit (CTC). As a result of the American Rescue Plan Act (ARPA), eligible taxpayers saw the benefit of the CTC jump from $2,000 per child to up to $3,600 per child. Additionally, half of the benefit was paid out in monthly sums between July and December of 2021, a system that created a lot of headaches for taxpayers who were improperly paid the credit then had to pay it back come tax filing season.
But the credit was also a headache for taxpayers in another way — it was expensive. Expanding the CTC in ARPA cost taxpayers over $100 billion for just a year. For reference, the IRA, even before accounting for gimmicks and rosy estimates of IRS enforcement revenue, is estimated to reduce deficits by about $238 billion over the next decade.
But more years of the expanded CTC would only cost more. The Congressional Budget Office estimates that making the more generous CTC permanent would cost taxpayers an average of $160 billion per year over the next decade — more expensive than the much-maligned Tax Cuts and Jobs Act, or the 2017 tax reform law, which included an expansion of the CTC of its own.
Over the course of a decade, making the more generous CTC permanent would cost about four times more than President Biden’s recent unilateral decision to cancel up to $20,000 in student debt per taxpayer.
Nevertheless, that’s exactly what some members of Congress are contemplating doing. Axios reports that the White House is seeking to work with Senate Democrats to push for expanding the CTC once again, hoping to trade it for support for extending an also expired provision allowing research and development (R&D) expenses to be deducted immediately rather than amortized over five years.
However, there’s little reason to tie the fates of these unrelated policies together. Allowing full expensing of R&D expenses has strong bipartisan support and is a common-sense policy change that would benefit businesses. After all, businesses value cash on hand more than cash down the road, meaning that full expensing creates a greater incentive to invest in R&D than a drawn out and complicated process of amortization.
On the other hand, switching from amortization to full expensing costs the federal government very little. After all, the federal government receives the same amount of tax revenue whether it allows R&D expenses to be amortized over five years or expensed immediately. The only difference is in how much tax revenue it receives each year. The unaffordability of expensive programs should be no bar to affordable ones, but a push for a massively expensive CTC expansion in the wake of weeks of back-patting about fiscal responsibility truly sums up how Washington works.
Taxpayers should not let concern about the deficit fade from their minds as quickly as it has from their elected representatives in Washington. Future generations won’t thank them for it if they do.
