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Democrats urge repeal of business loss tax breaks in relief package

Democrats urge repeal of business loss tax breaks in relief package
© Greg Nash

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 PelosiNancy PelosiOvernight Health Care: Pelosi pushes for drug pricing measure | South Africa to resume administering Johnson & Johnson vaccine | Early data indicate Pfizer, Moderna vaccines safe for pregnant women Allow a vote on the 'Born-Alive Abortion Survivors Protection Act' Female Republicans 'horrified' by male GOP lawmaker's description of Cheney: report MORE (D-Calif.) and Senate Majority Leader Charles SchumerChuck SchumerSenate to vote next week on repealing Trump methane rule  Joe Lieberman to push senators on DC statehood On The Money: Yellen touts 'whole-of-economy' plan to fight climate change | Senate GOP adopts symbolic earmark ban, digs in on debt limit MORE (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 DoggettLloyd Alton DoggettHouse Dems to unveil drug pricing measure ahead of Biden package Democrats see political winner in tax fight Progressives up pressure on Biden to back COVID vaccine patent waiver MORE (D-Texas) and Sen. Sheldon WhitehouseSheldon WhitehouseOvernight Energy: Biden reportedly will pledge to halve US emissions by 2030 | Ocasio-Cortez, Markey reintroduce Green New Deal resolution Democrats seek Barrett's recusal from case tied to conservative backers For a win on climate, let's put our best player in the game MORE (D-R.I.). 

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Former President TrumpDonald TrumpTrump: LeBron James's 'racist rants' are divisive, nasty North Carolina man accused of fraudulently obtaining .5M in PPP loans Biden announces picks to lead oceans, lands agencies MORE'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.