(Bloomberg) — The US economy is set for an unexpected fiscal boost if lawmakers back a potential deal for $70 billion worth of tax breaks for businesses and families.
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Congressional negotiators are locked in talks over renewing expired business tax breaks and boosting the child tax credit, evenly split between both. The proposal will need to pass through a Congress that is deeply divided over the nation’s fiscal trajectory, as some Republican lawmakers push for deep spending cuts as a condition for averting another government shutdown on Jan. 19 and Feb. 2, when temporary funding expires.
If passed, the tax breaks offer a double-edged sword for an economy that appears on course for a soft landing.
While the extra cash would boost consumer spending, it would also risk reigniting inflation pressures — complicating prospects for the Federal Reserve to lower interest rates this year, economists warned. Data for December show that inflation picked up at the end of 2023, fueled by services costs while a decline in goods prices petered out. The consumer price index increased 3.4% in the year through December, the most in three months. Prices for clothing and cars continue to increase.
Mickey Levy, a visiting scholar at the Hoover Institution, said the tax measures would add fuel to an economy that is already growing faster than estimates for its long run potential. The legacy of pandemic-era fiscal stimulus continues to juice growth, he said.
“There’s…
