Two Senate Democrats are criticizing a little-known provision of the CARES Act stimulus package that would provide a tax break mostly to wealthy taxpayers, suspending excess business losses for prior tax years.
Sen. Sheldon Whitehouse, D-R.I., and Lloyd Doggett, D-Texas, released an
“Congress should repeal this rotten, un-American giveaway and use the revenue to help workers battling through this crisis,” said Whitehouse (pictured) in a statement.
Earlier this month, Whitehouse and Doggett sent a
The provision rolls back a limitation in the Tax Cuts and Jobs Act on the amount of excess business losses for taxpayers other than corporations for tax years 2018, 2019 and 2020. According to the JCT’s analysis, 43,000 individual tax filers covered by one of the provisions would see their tax liability fall by a combined $70.3 billion in 2020. The analysis indicates that nearly 82 percent of those who will benefit from that provision make $1 million or more, with 95 percent making over $200,000.
The changes included in the CARES Act would enable wealthy taxpayers to use losses in some years to avoid paying taxes in other years. The 2017 tax overhaul changed the way noncorporate taxpayers could carry losses from a given year to minimize their tax bills in other years, the lawmakers noted. Starting in tax year 2018, taxpayers filing jointly could only use $500,000 in losses from actively managed investments, such as pass-through income from businesses, to offset their wage or capital gains income.
The Tax Cuts and Jobs Act of 2017 included another change that prohibits corporate and non-corporate taxpayers from carrying losses back in time. Before this change, a taxpayer who incurred a big loss in a given year could retroactively amend prior tax returns (going back up to five years) to use the losses to cancel out income, and thus to receive tax refunds. The 2017 law allowed losses to be carried forward indefinitely to future years but also limited the amount of income losses can offset to 80 percent of taxable income in a given year. That meant a taxpayer with $10 million in income would still have at least $2 million in taxable income, regardless of losses.
Sections 2303 and 2304 of the new CARES Act effectively suspend these changes for tax years 2018 through 2020. The day after the Senate passed the CARES Act, the JCT estimated that the provisions together would reduce government revenue by $195 billion over 10 years. Together, the changes are among the costliest provisions in the $2.2 trillion stimulus package.
“For those earning $1 million annually, a tax break buried in the recent coronavirus relief legislation is so generous that its total cost is more than total new funding for all hospitals in America and more than the total provided to all state and local governments,” Doggett said in a statement. “Someone wrongly seized on this health emergency to reward ultrarich beneficiaries, likely including the Trump family, with a tax loophole not available to middle class families. This net operating loss loophole is a loser that should be repealed.”
Democrats are especially angry because Republicans had adamantly refused to roll back the $10,000 limit on state and local income tax deductions that was also part of the 2017 tax overhaul and has disproportionately affected so-called “blue states.”
