Corporate America must step up to save the child tax credit
The fate of the legislative package is now uncertain.
Five years ago, 181 CEOs signed a groundbreaking statement promising to lead their companies for the benefit of not just shareholders but also stakeholders — including customers, workers, suppliers and the larger community.
While the pledge generated positive attention, it’s been the target of a major criticism: companies ultimately won’t do anything that undermines their own bottom lines. At the end of the day, CEOs have a fiduciary responsibility to their shareholders.
But, in Washington, the usual tension between social responsibility and shareholders’ interests has been momentarily suspended. In a high-stakes legislative fight, American corporations have the opportunity to support a law that would dramatically cut child poverty, while also substantially reducing their own tax burdens.
So why have those 181 CEOs been largely silent?
In late January, the House of Representatives overcame its state of extreme gridlock to pass a legislative package to expand the child tax credit (CTC) by a vote of 357 to 70.
Many Republicans who had previously been skeptical of the CTC supported the agreement because an unusual array of conservatives — including Newt Gingrich, Mike Huckabee, Rick Santorum and several major anti-abortion groups — came out in support of the expansion. Republicans also backed the bill because it contains enhancements to business tax deductions for research and development activities as well as for investment in new equipment.
The agreement is a big deal for struggling American families. The CTC has proven to be the single most effective tool for pulling kids out of poverty. While child poverty in America stood at 13.7 percent in 2018, the enactment of the CTC brought the level down to 5.2 percent in 2021. In 2022, after the expanded credit expired, the level rose back to 12.4 percent.
While the current proposal is smaller than the Covid-era program, it focuses squarely on the poorest families. Virtually all the benefits of the proposed expansion would go to kids who can’t currently access the full credits because their families’ incomes are too low. According to estimates from the Center on Budget and Policy Priorities, the proposal would pull at least 500,000 children above the poverty line and provide substantial benefits to 16 million low-income families with children.
Business groups have also been adamant that they need the tax changes in the law — which include immediate R&D expensing and 100 percent accelerated depreciation for businesses’ capital investments — in order, they argue, to increase innovation, boost hiring and help small businesses survive. And both left and right have been supportive of the provision to offset the costs of the bill by making changes to the management of a Covid-era business tax credit, which has been subject to massive fraud and abuse.
Still, despite all of this, the fate of the legislative package is now uncertain.
On Feb. 29, Sen. Thom Tillis (R-N.C.), an influential member of the Senate Finance Committee, published an op-ed in the Wall Street Journal breaking with the vast majority of House Republicans to oppose the bill. Sen. Mike Crapo, the ranking member of the Senate Finance Committee, has so far withheld his support. Republican Leader Mitch McConnell is deferring to his Senate Finance Committee members on whether to allow passage of the bill.
Only the business community can muster the Republican support needed to ensure the success of CTC expansion. This isn’t just because of financial resources, but also the capacity to coordinate in-state business leaders to mount the necessary support.
While groups including the National Association of Manufacturers and Business Roundtable have published statements of support for the bill and engaged in some advocacy, this effort is small compared to what business groups invested in the lobbying blitz leading up to the passage of the 2017 Trump tax cuts. While this might be expected given the stakes of the broader tax reforms, there are important reasons for CEOs to drastically step up their commitment. The business tax changes would result in tens of billions of dollars of savings for private-sector firms. And because the 2017 tax cuts expire next year — and the political composition of the government in 2025 is uncertain — there’s no guarantee that businesses will get another chance to get a deal like this.
Beyond the effort to secure tax benefits, CEOs should see the potential upside in shepherding a win for millions of kids and families who are enduring the stress and indignity of poverty. Yes, this would be good PR. But an expansion of the CTC would boost businesses by giving more purchasing power to people who need it. Ultimately, ensuring the success of the CTC would be a validation of the principle that firms will vigorously pursue the public good — at least when the interests of shareholders and stakeholders align.
Justin Talbot Zorn is a senior adviser at the Center for Economic and Policy Research, a Truman National Security Fellow and served as legislative director for three members of Congress.