Still, the plan could be a boon for President Joe Biden, whose poll numbers have slumped amid voter anxiety over the economy. Asked how the White House is weighing the potential inflationary impact of any proposal, Biden’s top economic adviser instead emphasized benefits of the bill.
“We are very much hoping that we can see a balanced package,” National Economic Council Director Lael Brainard said Thursday. “But what is critical for the president is that the child tax credit be extended and particularly be made available for low and moderate income families, because it is so powerful in reducing child poverty.”
Child Credit
The child tax credit boost on the table as of last week wouldn’t be nearly as much as the Covid-era version, which took the maximum credit from $2,000 to $3,600 per child. It’s also not fully refundable for those without tax burdens, nor would it be paid monthly. Those details could change, as many Democrats vow to block the current deal.
Nancy Vanden Houten, a lead economist at Oxford Economics, said the overall size of the tax package wouldn’t be enough to derail her view that the Fed will cut rates in May.
“The impact on the broader economy would be relatively small, and probably not enough to change our forecast for inflation and the Fed,” Houten said.
At the very least, the tax negotiations underscore that lawmakers remain a long way from entering an era of austerity even amid warnings from ratings firms and investors that the US fiscal trajectory is unsustainable.
Tax Season
Moody’s Investors Service in November warned it could downgrade the sovereign US rating because of wider budget deficits and political polarization. It lowered the outlook to negative from stable while affirming the grade at Aaa. Fitch Ratings downgraded the US in August.
If the tax proposal is agreed, negotiators are aiming for Congress to enact it before the Jan. 29 start of the annual tax-filing season.
“If it passes, it just becomes another shot in the arm for an economy that maybe does, or maybe doesn’t, need it,” said Owen Tedford, a senior research analyst at Beacon Policy Advisors LLC.
This article was provided by Bloomberg News.