While U.S. lawmakers have an agreement to avert a U.S. government shutdown on Jan. 20, congressional leaders are reported to be close to a separate deal that would restore President Joe Biden’s 2021 expansion of the child tax credit in exchange for bringing back a pair of deductions for business investment. Although such an agreement would be expected to add at least $100 billion to the budget deficit over the next two years, both sides say they’re confident they can limit the cost to $70 billion.

I am less confident, but the core elements of this deal are good and the House and Senate should pass it even if the hit to the budget is $100 billion.

That might sound strange given the dire fiscal straits the U.S. is in, but not all deficit increases are created equal. The two halves of this deal provide the biggest bang for the buck — in terms of reducing poverty and growing the economy — on offer in the world of tax policy. Biden’s child tax credit expansion was in place for just one year, but in that one year it helped slash child poverty to a record low 5.2%.

The cost of not lowering child poverty is extreme. A 2018 paper published by Social Work Research and authored by Washington University professors Michael McLaughlin and Mark Rank estimated the total cost of child poverty on the U.S. economy to exceed $1 trillion per year. Their analysis showed that reductions in worker productivity, increases in crime and increases in health care costs were the largest contributors to the economic loss associated with child poverty.

Of the two business tax deductions, bonus depreciation was still largely in place in 2023 and helped enable manufacturers to double their domestic investments to take advantage of Biden’s onshoring initiatives. Yet, it’s set to phase out over the next several years. Under bonus depreciation, companies can write off the full cost of investments in both new facilities and equipment when calculating their taxable income for the year in which those investments are made. The other business tax deduction does the same thing for research and development expenses.

Without these two benefits businesses would be forced to amortize such expenses over the expected lifetime of an investment rather than all at once upfront. The former discourages businesses from making big investments all at once, the opposite of what Biden wanted to achieve and in large measure did achieve with his reshoring policy. The Tax Foundation, a Washington think-tank that specializes in economic models of tax policy, estimates that the loss of the two amortization reforms would reduce gross domestic product by 1.2 percentage points to 1.4 percentage points a year, or $275 billion to $325 billion annually

The modeling for the child tax credit generates equally impressive numbers. The Census Bureau estimates that the expansion of the child tax credit in 2021 from $2,000 to as much as $3,600 per child lifted 2.1 million children out of poverty. Using the Census Bureau’s Supplemental Poverty Measure, which includes the effect of refundable tax credits, the 2021 expansion reduced the child poverty rate in the U.S. from 8.1% to 5.3%. The child poverty among Blacks shrank even more, from 13.4% to 8.1%. (The expanded child tax credit program expired at the end of 2021, going back to $2,000 per child.)

The benefits that accompanied lower poverty rates were supercharged by the Biden administration’s stimulus checks to support the economy through the pandemic. The Census Bureau estimates that without either the expansion in the child tax credit or fiscal stimulus, the child poverty rate would have been 12.6% overall and 20.2% for Blacks.

The federal government spent $6.1 trillion in fiscal 2023. Spending $100 billion over the next two years to bring 2.1 million children out of poverty and to grow the economy by as much as $325 billion each year is an incredible deal. It’s a much better return than what taxpayers will receive on the other 99% of government outlays. That doesn’t mean we can afford to ignore the rising deficit. Major spending cuts and significant tax increases are necessary. It’s vital however that we make cuts and design tax increases in intelligent and efficient ways rather than passing on the best deals we have.

Karl W. Smith is a Bloomberg Opinion columnist. Previously, he was vice president for federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina.

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