The House voted on Wednesday evening to pass a $78 billion bipartisan tax package that would temporarily expand the child tax credit and restore a number of business tax benefits.

The bill will next go to the Senate. House Speaker Mike Johnson currently oversees a razor-thin majority, but the bill passed with rare bipartisan support. The vote was 357 to 70 with 188 Democrats and 169 Republicans voting in favor and 23 Democrats and 47 Republicans opposed.

The deal would provide a larger credit in the first year to the low-income families of roughly 16 million children, or more than 80% of those who currently don’t receive the full credit because their families earn too little, according to the left-leaning Center on Budget and Policy Priorities. The package would lift at least half a million children out of poverty and improve the financial situation of about 5 million more children who would remain below the poverty line, once the proposal is fully in effect in 2025, according to the center.

The bill has faced pushback from moderates, particularly from New York, because it does not raise the cap on the federal deduction for state and local taxes. Four New York House Republicans nearly sank an unrelated procedural vote on Tuesday to show their displeasure with the bill, but relented after discussions with leadership.

Overall, the deal would not have much of an impact on the federal budget. It’s expected to reduce revenues by less than $400 million over 10 years.

Beefing up the child Tax Credit

Most of the child tax credit enhancements would benefit lower-income families, who would be able to claim more of the credit. The deal calls for increasing the maximum refundable credit for households who owe little or no income taxes.

Low-income families with more than one child would receive the same credit for each of their children, just as higher-income households already do. Also, families would have the choice of using their earnings in the current year or prior year, in case their income is volatile.

The credit would be adjusted for inflation starting in 2024, which is expected to bump up the maximum credit to $2,100 per child in 2025, up from the current $2,000, according to the left-leaning Center on Budget and Policy Priorities.

The provisions would be in effect for three tax years from 2023 through 2025.

Some Republicans have voiced concerns that the proposal would disincentivize work or allow undocumented immigrants to claim the credit, but House Ways and Means Chairman Jason Smith has stressed that the deal maintains the minimum earnings threshold of $2,500 needed to begin to claim the credit and the requirement that children must have Social Security numbers for their families to file for the credit.

Some Democrats, including Rep. Rosa DeLauro of Connecticut, the top Democrat on the House Appropriations Committee, are upset that the deal doesn’t make the full credit available to more families with no or very low incomes.

Providing tax relief to businesses

The deal also temporarily restores several business tax benefits that recently ended or have begun to phase out. The benefits were originally part of the Republicans’ 2017 Tax Cuts and Jobs Act.

The agreement would once again allow businesses to immediately deduct the cost of their US-based research and experimentation investments instead of over five years, as well as restore their ability to immediately deduct 100% of their investment in machinery and equipment. And it would relax the tightened limits on the deductibility of interest expenses, which mainly affects companies that have a lot of debt. These three provisions would run through 2025.

The bill also contains relief for those affected by disasters, including recent hurricanes, flooding, wildfires and the Ohio train derailment in East Palestine last year.

The package would enhance the Low-Income Housing Tax Credit in an effort to increase the supply of low-income housing.

It would also accelerate the deadline for filing backdated claims for the Employee Retention Tax Credit, a Covid 19-era program that has been subject to widespread fraud, to January 31, 2024, instead of April 15, 2025. That provision is estimated to save taxpayers more than $78 billion – offsetting most of the cost of the package, according to the Joint Committee on Taxation.