Repent at leisure. Forbes reports that there is, surprise!, a provision in the CARES “stimulus” act that we might want to be corrected:
While wealthy Americans are not eligible for the comparatively measly $1,200 stimulus checks that are now being disbursed to many Americans, they are on pace to do even better. 43,000 taxpayers, who earn more than $1 million annually, are each set to receive a $1.7 million windfall, on average, thanks to a provision buried in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
You may or may not be surprised that some of the language conveniently inserted into the $2.2 trillion-dollar Coronavirus Aid, Relief, and Economic Security Act (CARES) skews heavily in favor of the wealthy. The provision doling out literally millions of dollars is aimed at a limitation that was created in 2017 when Republicans overhauled the tax code. It “temporarily suspends a limitation on how much owners of businesses formed as “pass-through†entities can deduct against their non-business income, such as capital gains, to reduce their tax liability,†according to The Washington Post.
and
“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,†said Doggett. “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 This net operating loss loophole is a loser that should be repealed.â€
Policy is hard and it’s a lot easier to enact flawed legislation in a panic than it will be to amend that legislation once enacted into law.
IMO there are serious constitutional questions about the legality of the CARES act, e.g. the pesky Origination Clause in the Constitution. That there was an emergency and how could you possibly expect our legislators to know what was in the law for which they voted are not good excuses.
” how could you possibly expect our legislators to know what was in the law”
Of course we knew. There had to be large cuts for the wealthy or it couldn’t pass into law. Everyone who is surprised at this please your hand. Ok, no hands up so we all knew it was in there.
Steve
Steve, 90% of Congressmen rarely know much about what’s in the legislation for which they vote. Most of the time they vote as the leadership directs. In cases in which the legislation would adversely influence their re-election bids, they may vote against but only with the concurrence of the leadership and only if their vote won’t make any difference in the outcome.
I think you’re using the word “know” differently than I would which is “specific knowledge” rather than assumption or suspicion.
I was being a bit sarcastic, but I think the point stands. There was an over 90% chance something like this was in there.
I have had the chance to meet with out our congressman/woman a bunch of times over the last 10 years. My impression, and maybe it is different in Chicago, is that they rarely read an entire bill, but their staff reads it, or more precisely, the staff member with expertise in that given area reads it. It is that staff person’s responsibility to tell them whatever important details are in it. Leadership tells them to vote for, or against a bill, emphasizing what they think is important, but staff give them details, if they are interested. Mom too the time I dont think they are that interested.
Steve
It would be nice if Congress had more transparency so that we could know specifically where and how this was inserted into the final legislation. But of course, avoiding that is exactly why we don’t have transparency.
Hopefully, this will be clawed-back in future legislation.
It seems to merely lift a time-shifting restriction, which in this environment is probably either inconsequential or a good thing. I don’t think a sunset provision would be inappropriate, but I can’t tell from the linked piece whether one exists or not.
What is the federal government doing to help small business? It looks like from the NBER survey(*), many of them are screwed and are probably going to have to make significant capital investments l to stay open.
(*) “When firms are told to expect a one-month crisis, the expectation of remaining open by the end of the year hovers
around 70 percent across all industries with the exception of Arts and Entertainment, and Personal Services. In those industries, the expectation of remaining open drops to 65 and 57 percent respectively.
“When firms are told to expect a six-month crisis, the average expectation of remaining open falls to 38 percent, and there is significant heterogeneity between sectors. The expected survival probability for firms in Arts and Entertainment drops precipitously to 45 percent if the crisis lasts 4 months, and 35 percent if the crisis lasts 6 months. The expected probability of being open for Personal Services firms fall to 22 percent if the crisis lasts six months.”
How Are Small Businesses Adjusting to COVID-19? Early Evidence from a Survey
I found a clearer description of this change:
“On March 27, 2020, President Trump signed the CARES Act in hopes of relieving economic pressure brought on by the growing COVID-19 pandemic. Included in the Act is a provision which suspends the Sec. 461(l) excess business loss limitation for tax years beginning on or after January 1, 2018 through December 31, 2020. Congress wisely suspended this limitation in order to provide relief to small business owners who incur losses in these years. Non-corporate taxpayers may temporarily be eligible to take full advantage of business losses previously limited under Sec. 461(l). Taxpayers who had business losses limited under 461(l) in 2018 or 2019 should consider filing amended returns to generate tax refunds.”
https://www.schgroup.com/resource/blog-post/how-business-loss-limitation-section-461i-and-nol-carrybacks-changed-under-the-cares-act/
Previously, net operating losses could only be used to offset 80% of taxable income, with the remaining deferred for later years. I understand these types of caps with deferrals as intending to limit businesses from taking opportunistic advantages from losses in a given year that don’t reflect multiple year realities. The reality seems to me that these losses are likely to be real given that we are in a recession, and I don’t see the benefit from trying to extract taxes from pass-through entities operating at losses. It seems likely to discourage keeping the business going.
And it does end this year.
I think it mostly supports my case that we need a “single subject” amendment to the Constitution.
Dave: The line-item veto that was ruled unconstitutional was a sort of substitute for what you propose. I would propose an additional ‘no riders’ amendment on top of it or to be included with it. The devil of course would be (1) the actual enactment of said amendment and (2) the enforcement of said amendment. That’s why the idea of a living constitution is so corrosive.
Steve: When journalists start using loaded words like ‘windfall’ in their columns, my BS meter goes into overdrive. I get irritated by pejorative language no matter who uses it. It makes it sound as if these 43K individuals are sitting on moneybags crowing with joy at another sack of gold being tossed their way. PD Shaw’s quote does a better job describing what the act does than I do. A couple of months’ hiatus in the operations of an ‘S’ corp will drive many owners into bankruptcy and put their employees out onto the street. Some that job-protected politicians, bureaucrats, administrators, and their staffs do not seem to comprehend or would rather not comprehend.
PD got it exactly right. Its a timing issue. There is no “doling out.” The offsets would have been there, but are being accelerated to when they are needed: now. Don’t forget, the government is forcing the shutdowns. Its always fun to do rich bashing. But unless you have something against employment and employees you can stop foaming at the mouth.
I could go on to the next level of analysis, that operating losses reduce the capital account in pass throughs, and how tax offsets exist for any investor, regardless of size or private vs public investment, but why spoil some good Thursday rich bashing?
If it’s a good policy, it should be enacted on its own steam rather than as part of a package of relief for individuals and companies struggling for survival while shut down due to SARS-CoV-2.
You bet, Dave. That’s where I as going in my second paragraph. But I figured people eyes would glaze over.
In my usual short hand, since you will probably get it, what’s the difference from offsetting losses for a pure public securities investor vs offsetting losses for a hybrid, private (with passthrough structure), public securities investor.
None. The original policy was flawed.
Maybe our legislators should try to avoid the appearance of impropriety. Or maybe we as voters aren’t worth the effort.