The debate: Today, House Democrats are voting on a $3 trillion wish-list that Rep. Kevin Brady has described as a “recipe for a prolonged recession.”

Part of that reason? The bill is tilted toward wealthy individuals in high-tax states rather than workers and Main Street businesses.

In order to pay for a long-criticized tax break for millionaires, Democrats are proposing to roll back part of the bipartisan CARES Act that has to deal with Net Operating Losses – or, in short, letting job creators recover their losses now instead of in the future to weather this cash-flow crisis.

Democrats will claim that by rolling back the changes made to NOL that they are helping the middle class. But that couldn’t be further from the truth. Here is a quick rundown of how these two tax policies work.

SALT: Giving Governors Permission to Raise Taxes

As part of the GOP Tax Cuts, President Trump rolled back the once-unlimited deduction for state and local taxes to $10,000 as a way to cut taxes for all Americans. States started to see record high revenues following tax reform, yet Democrats from high-tax states continued to insist that SALT needed to be reinstated.

Doing so is costly, regressive, and does nothing for the middle class.

The left-leaning Tax Policy Center estimates that the “top 1 percent of households would receive 56 percent of the benefit of repeal, and the top 5 percent of households would receive over 80 percent of the benefit.”

If SALT were reinstated, wealthy individuals from these high-tax states would reap the benefits all while their governors would have permission to start raising taxes further on blue-collar workers.

NOL: Letting Employers Keep More of Their Own Cash

As part of the CARES Act, Congress provided $150 billion of liquidity—in another word: cash— to businesses. This was not a bailout or a carveout; it simply allows businesses to keep more of their own money.

Democrats, in order to pay for their tax cut for millionaires, want to shrink the years from which a local business can receive a tax refund based on current losses.

The policy created in CARES is a little complex, but here is how it works. If a local pizza shop has a busy year (the high school football team made it to playoffs), they bring in more money and therefore owe more in taxes. But if that pizza shop had a slow year (the football team, sadly, was in a “rebuilding” season), they’ll have losses.

The bipartisan CARES Act provided a cushion to that restaurant by allowing them to use those losses against the income in prior years, going back five years. Additionally, individuals with excess business losses in 2018, 2019, and 2020, are also able to “carryback” those losses to the preceding five taxable years.

What does this accomplish? It would lower their tax burden owed in those prior years, and the restaurant would receive a tax refund.

But instead of helping that local business further – who certainly will face cash-flow problems this year – Democrats want those job creators with losses to continue to be strapped for cash.

Their new, partisan bill would no longer allow businesses to be able to carryback those losses for a refund that would provide needed liquidity for their business.

The bottom line: As one House Democrat who opposes this bill said: “This is not the time for partisan gamesmanship, this is the time to find common ground.” The Speaker should heed her advice.

Want to read more on the fight against Coronavirus? Read our Coronavirus Bulletin here which contains our extensive FAQ about recent federal actions.

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