Democrats urge repeal of business loss tax breaks in relief package

A group of 120 House and Senate Democrats are urging congressional leaders to have the next coronavirus relief package undo tax breaks related to the treatment of business losses.

In a letter Tuesday, the lawmakers called on House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Charles Schumer (D-N.Y.) to use the revenue raised by undoing those tax provisions “to provide relief for families struggling though this challenging time.” 

Lawmakers who took the lead on the letter include Rep. Lloyd Doggett (D-Texas) and Sen. Sheldon Whitehouse (D-R.I.). 

Former President Trump’s 2017 tax cut law imposed restrictions on businesses’ ability to use net operating losses (NOL) to reduce their tax bills, in an effort to raise revenue to pay for tax cuts elsewhere in the measure. A $2.2 trillion coronavirus relief package Congress passed last year, known as the CARES Act, eased those restrictions.

The CARES Act allows net operating losses that were generated in 2018, 2019 and 2020 to be carried back for up to five years, after the 2017 tax law had eliminated carrybacks. Additionally, the CARES Act temporarily repealed a provision in Trump’s tax law that limited the amount of business losses owners of noncorporate businesses could use to offset their nonbusiness income in a given year.

Republicans have defended the provisions in the CARES Act, arguing that they allow businesses to have more cash flow that they can use to keep their employees on their payrolls. But Democrats argue that the provisions largely benefit high-income people and are a poor way to provide relief to businesses during the pandemic.

“The repeal of NOL limitations in the CARES Act had little to do with pandemic relief and arbitrarily rewards business owners who lost money before the pandemic began,” Democrats wrote in their letter. “Making matters worse, unlike the small business relief provided through the Paycheck Protection Program, these windfalls come with no strings attached to ensure they support payroll or critical business operations.” 

House Democrats passed coronavirus relief legislation last year called the HEROES Act, which was not taken up by the Senate, that would have restored the limit on business losses for noncorporate businesses, and make that limit permanent. It also would have only allowed businesses to carry losses back to 2018 and later. The Joint Committee on Taxation, Congress’s nonpartisan tax scorekeeper, estimated that these changes would raise $254 billion over a decade. 

In their letter this week, Democrats urged Pelosi and Schumer to include the HEROES Act provisions in coronavirus relief legislation this year, and to use the revenue raised by the changes to help Americans who have lost income because of the pandemic.

Net operating losses were not mentioned in the $1.9 trillion coronavirus relief proposal that President Biden has floated. However, during his presidential campaign, Biden proposed repealing the tax break for noncorporate business owners in order to finance student debt relief.