Policy and Legal

Policy and Legal

Lawmakers Push for Retroactive Tax Increase

Key members of Congress are seeking to include a significant rollback of net operating loss relief in a COVID-19 relief bill, according to Politico (subscription).

What it is: When a company’s deductible expenses are greater than its revenues, it results in a net operating loss. Under the CARES Act, companies with losses from 2018, 2019 and 2020 can carry these losses back for the five previous years and have the losses offset up to 100% of taxable income, providing critical liquidity through tax refunds.

  • Some members of Congress now want to limit carrybacks of businesses’ 2020 losses to only two prior tax years, while also limiting the amount of relief for pass-throughs.

Why it matters: The provision provides important liquidity support, especially for small and medium-sized manufacturers. Eliminating or reducing it could make it more challenging for manufacturers to keep workers on the payroll and stay in business, says NAM Senior Director of Tax Policy David Eiselsberg. Ultimately, it would amount to a major retroactive tax increase on businesses and workers that are critical to our pandemic response.

Blast from the past: As President Barack Obama said in a 2009 interview with MSNBC’s Chuck Todd, “The last thing you want to do is raise taxes in the middle of a recession.”

A more recent statement: Treasury Secretary Janet Yellen said during her confirmation hearing that the Biden administration’s “focus right now is not on tax increases; it’s on programs to help us through the pandemic.”

The NAM says: “Net operating loss relief is a vital tool for manufacturers that are working hard to stay in business and support their employees across the country,” said Eiselsberg. “Undoing this critical liquidity support would not only hurt the ability of businesses to get through the pandemic but would also result in a retroactive tax increase on a sector that is key to America’s success.”

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