On February 2nd – Groundhog Day, appropriately enough – dozens of Senators and Representatives called on Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer to retroactively repeal the net operating loss (NOL) relief included in last year’s CARES Act.
Their letter claims the NOL relief was a “special-interest” giveaway that was “tucked” into the CARES Act. Neither of these claims is true, as made clear in the most recent business community letter released today and signed by more than 80 trade associations. The provision was requested by the business community, it was widely discussed and understood prior to any votes in the House or the Senate and, far from being targeted at special interests, the relief it provides is broad-based and available to all businesses who lost money in the past three years.
Here is the comprehensive response from the business community:
A recent letter signed by dozens of U.S. Senators and Representatives called on Congress to retroactively repeal last year’s Net Operating Loss (NOL) relief enacted in the CARES Act. This ill-advised effort would result in a massive, retroactive tax hike on thousands of businesses who, by definition, have suffered losses in recent years and need help during the pandemic. It should be rejected by the both the House and the Senate.
The CARES Act included a 5-year carryback for losses incurred in 2018, 2019, and 2020. It also suspended the loss limitation rules for those years. Absent the loss limitation relief, pass-through businesses with large losses would have been unable to access the NOL relief. With small business revenue declining by 30 percent in the past year, this provision was necessary to ensure businesses of all sizes benefitted from the policy.
Providing temporary NOL relief has broad support in the business community. One-hundred and twenty national business trade groups called on Congress to include it in the response to the COVID-19 pandemic. It was part of the CARES Act negotiations from the beginning and it was included in every CARES Act draft leading up its adoption. There is simply no truth to the notion that this provision was “snuck” into the legislation.
Nor is it true that this policy is something new. NOL relief enjoys a longstanding history of bipartisan support during economic crises. The “alternative” bill authored by Speaker Nancy Pelosi last spring included five-year carrybacks of net operating losses, as did the Worker, Homeownership, and Business Assistance Act of 2009, the Gulf Opportunity Zone Act of 2005, and the Job Creation and Worker Assistance Act of 2002. All of those bills were supported by bipartisan coalitions and were adopted by the House and Senate with overwhelming majorities. As President Obama’s press office summarized the 2009 provision:
“The bill provides an expanded tax cut to tens of thousands of struggling businesses, providing them with the immediate cash they need to pursue an expansion or avoid contracting or furloughing their workers…Business losses incurred in 2008 or 2009 can now be used to recoup taxes paid in the prior five years. This provision is a fiscally responsible economic kick-start, putting $33 billion of tax cuts in the hands of businesses this year when they need it most, while enabling Treasury to recoup the majority of that funding in the coming years as these businesses regain their strength and resume paying taxes.”
A key reason NOL carrybacks have long enjoyed bipartisan support is highlighted in the Obama Administration’s statement – any tax benefit realized by businesses suffering losses will result in higher tax payments for those businesses in the coming years. The goal of the policy is to level out tax burdens to reflect the long-term income of the businesses.
Finally, repeal of the temporary NOL and Loss-Limitation relief will not “save $250 billion” as the letter asserts. The Joint Committee of Taxation estimated NOL relief would reduce revenues by $161 billion over ten years, and even that estimate is likely overstated. NOL carrybacks provide a timing benefit only, as deductions taken this year are no longer available next year. Reversing this policy will not generate nearly $100 billion in additional savings. Instead, the policy being advocated in the letter would not just impose a retroactive tax hike on businesses suffering losses, but also extend that tax hike beyond the current sunset of the loss limitation rules beginning after 2025.
The undersigned business organizations ask that you stand by the business community during this difficult time and reject imposing a massive, retroactive tax hike on businesses that have lost money in recent years. Providing businesses with temporary NOL relief has a long history of bipartisan support, it has been enacted during every economic downturn in recent memory, and the provision in question only applied to tax year 2020. The policy has already sunset.
Thank you for your consideration of our views and for defending businesses during the pandemic.
This letter continues an almost year-long campaign to rewrite the legislative history of the CARES Act and to, at this point, retroactively increase taxes on businesses suffering losses in the pandemic. The leaders in both the House and the Senate should reject this effort and stand by the Main Street business community.