WASHINGTON — Massachusetts stands to be a significant beneficiary of the $78 billion bipartisan tax bill that passed the House on Wednesday for two main reasons: it would help low-income residents in one of the nation’s highest-cost regions while also boosting the state’s vital biotech industry.
The legislation would increase the child tax credit and a tax credit for building low-income housing, while restoring a key research and development tax break for businesses through 2025.
“Massachusetts may be the state of the union that most benefits from this deal,” said Representative Jake Auchincloss, a Newton Democrat. “R&D, housing, and tax credits for children are three things that are huge needs for the Bay State economy and families.”
Providing money for families and businesses was the bipartisan compromise that led to strong support for the Tax Relief for American Families and Workers Act. Still, despite the overwhelming 357-70 House vote, the legislation faces hurdles in the Senate as lawmakers try to enact it before the April 15 tax-filing deadline.
About 182,000 children in low-income families in Massachusetts who don’t qualify for the full child tax credit would see an increase in their benefit in the first year under the legislation, according to the Center on Budget and Policy Priorities, a progressive think tank. Nationwide, 16 million children would benefit, the think tank estimated. The changes would apply to the 2023 tax returns people will file this year and continue through the 2025 tax returns.
The tax credit for each child under 17 years old increased temporarily to as much as $3,600 in 2021 under President Biden’s American Rescue Plan pandemic relief bill. That law also allowed low-income families that didn’t owe any income taxes to receive the money immediately in monthly payments instead of waiting for it to come after they filed their federal tax return the following year. That boost during the pandemic sharply reduced child poverty in the country.
But the tax credit reverted to $2,000 per child in 2022. Families that didn’t owe income taxes could only receive $1,600 and not until they filed their taxes the following year. Democrats wanted to restore the credit to its pandemic level and return to the monthly checks, but Republicans balked.
The compromise in the new tax bill increased the credit for families who don’t owe income taxes to $1,800 in their 2023 tax returns, with the figure rising to $1,900 in 2024 and then to $2,000 in 2025. The overall $2,000 child tax credit would increase in 2024 and 2025 based on inflation. Low income families would also get the inflation adjustment in 2025, effectively eliminating the cap on their portion of the tax credit.
“It is not a bill that we feel great about,” said Revere Representative Katherine Clark, the second-ranking House Democrat. “But there are pieces of this bill that are critical to families at home, and it makes progress, and 16 million children will be helped by however flawed this version is of the Child Tax Credit. That is something that I think our caucus feels we have to come together and support.”
She said the housing tax credit could be particularly helpful in the Boston area, where housing is unaffordable for many. The legislation increases the Low-Income Housing Tax Credit by 12.5 percent through 2025 to stimulate more construction of affordable housing.
Springfield Representative Richard Neal, the top Democrat on the tax-writing Ways and Means Committee where the bill was written, cited improvements to the housing tax credit as one way the bill was improved by Democrats on the panel. But he said his discussions with committee chairman, Representative Jason Smith of Missouri, about a larger expansion of the child tax credit didn’t bear fruit.
“I think we did a series of things that significantly improved the bill, which the minority is supposed to do,” Neal said. “We could have turned it into a huge bipartisan achievement if, in fact, they bought into an expanded child credit.”
The bill faced opposition from hardline conservatives, who call the child tax credit an entitlement giveaway. They also have falsely claimed that the legislation for the first time would allow eligibility for some children who are American citizens but their parents are undocumented immigrants. Smith said the bill “provides no special loopholes for illegal immigrants.” Those children, who must have a Social Security number, already are eligible for the credit. The bill only increased the benefit.
There were 169 Republicans who joined with 188 Democrats for House approval — including the entire Massachusetts delegation. But, those concerns could help stall the bill in the Senate.
Republican supporters focused on the business provisions in the legislation, saying they would be a big help for the economy.
“There’s some folks out there that don’t like the [expanded] child tax credit — I personally don’t like it — but I think it’s more than a fair trade in the overall package,” said Texas Representative Jodey Arrington.
The bill temporarily restores business breaks that were part of the 2017 tax law enacted under Donald Trump that have expired or are being phased out. Through their 2025 tax returns, businesses again would be allowed to deduct the full cost of research and development expenditures in the same year they are made instead of having to spread that deduction over five years.
Businesses also would be able once again to deduct the full cost of investments in new equipment, machinery and technology through the 2025 tax year. Without the legislation, that deduction is set to start phasing out, dropping to 80 percent on 2023 tax returns and ultimately eliminated in 2027.
Those tax breaks are crucial to Massachusetts biotech companies, particularly small ones that aren’t yet turning a profit, said Ed Coppinger, head of government affairs at MassBio, a trade group representing the state’s life sciences industry.
“The success rate is so low on these companies already because it’s cutting edge ... and if the money that they’ve raised for research and development, to take their innovation to the next level, the next phase of drug research, has to be used for a tax liability, it will significantly impact these small companies,” he said. “If you’re working on the first innovation, that first drug, that can take 10 to 12 years or longer. If you can’t get that write-off, you’re just going to run out of money.”
The legislation drew broad support from national business groups, such as the US Chamber of Commerce, as well as a slew of state organizations, including Associated Industries of Massachusetts and the Retailers Association of Massachusetts.
“All this that we’re talking about in this package has been proven to be successful in lifting children out of poverty, helping businesses innovate and reinvest, expand, buy new equipment, hire more people,” said Representative Nicole Malliotakis, a New York Republican who represents a competitive district. “I mean, these are all good things.”