Prompted by the pandemic, about 33.5 million people in the US have filed for unemployment in seven weeks. Jobs are scarce. Lines at food banks are miles long. Yet the CARES Act coronavirus relief package passed in March offers a windfall for the rich in the form of retroactive tax breaks unrelated to Covid-19, which will cost Americans $86 billon in 2020 alone (pdf).
Congress is facing mounting pressure to repeal two tricky provisions initiated by Senate Republicans nestled deep in that more than 800-page bill. The loopholes promise an average of $1.6 million for most millionaires, while everyone else tries to stretch a onetime $1,200 stimulus check.
Yesterday, 194 groups—including Americans for Tax Fairness, Oxfam, Greenpeace, United Steelworkers, and the American Federation of Teachers—wrote to Congress “to strongly oppose two costly tax hand-outs to wealthy business owners and corporations.”
The tax breaks allow them to offset losses in certain years by avoiding paying taxes in other years. These provisions operate retroactively and temporarily repeal reforms put in place just two years ago. The organizations write:
Those likely to benefit in a big way from this tax break include owners of real estate firms (possibly including The Trump Organization), hedge funds, private equity firms and law firms. Such businesses have the greatest capacity to weather the current economic disaster. Aid for this privileged group would be better spent on those suffering most from the pandemic.
The Institute on Taxation and Economic Policy explained in April that the new rules will allow companies to “game the system.” They can amend their past taxes, applying current losses to offset income earned in years before 2018 when tax rates were more favorable to them. “Of course, this sort of timing shift is utterly unavailable to millions of low- and middle-income individuals and small businesses with conventional earnings profiles,” the taxation policy experts write.
Notably, these loopholes come with no conditions. They don’t require companies to keep employees on their payrolls, for example. They simply ensure that the wealthiest gain amid the pandemic that has devastated the national economy and placed millions of Americans in financial peril.
More than 50 Democrats in Congress have already expressed their support for a bill to repeal the loopholes, which was introduced late last month by Rhode Island Democratic senator Sheldon Whitehouse and Texas Democratic congressman Lloyd Doggett.
The bill would replace the tax loopholes for the wealthiest with a provision designed to help small companies showing under $15 million in receipts—under certain conditions. The businesses can’t offer “excessive executive compensation, dividends, or stock buybacks,” say Democratic lawmakers. Also, it would only apply to 2020 rather than working retroactively, and would give those taxpayers advanced refunds of up to $100,000, providing cash to weather the economic crisis.
But if you’re wondering how the two tricky provisions in the CARES Act even passed in the first place, given the cost to American taxpayers, Whitehouse can explain.
The legislation was passed quickly, amidst an emergency, and with great urgency. CARES is a $2.2 trillion bill designed to address the needs of individuals, small and big businesses, hospitals and healthcare providers, industries, and states and localities. Meanwhile, lawmakers were under pressure to get it done as fast as possible. Normally, legislators would have time to debate more than 800 pages of legislation, but the start of the pandemic was, by definition, not a normal time. So, though some members of Congress suspected the loopholes were problematic, there was little time to haggle and the actual cost to Americans wasn’t immediately understood or calculated, Whitehouse told Quartz last month.
Lawmakers knew the tax clauses existed and that Republicans were insistent on their passage. However, the specifics—just how much the provisions could line the pockets of the rich and benefit wealthy real estate investors like president Donald Trump and his son-in-law Jared Kushner—were unclear. “What was a surprise was just how much money those provisions will loot from taxpayers to send to real estate investors and other million-dollar-plus earners—tax filers like the Trumps and Kushners,” Whitehouse explained.
He and Doggett, both members of the nonpartisan Joint Committee on Taxation (JCT), asked for an analysis of the tax breaks after the CARES Act was signed into law. What they discovered would probably shock most Americans. “Just 43,000 individual tax filers covered by one of the Republican provisions would see their tax liability fall by a combined $70.3 billion in 2020. Nearly 82% of those who will benefit from that provision make $1 million or more, with 95 percent making over $200,000,” the lawmakers said in a statement on the JCT’s analysis.
Support for a repeal of these provisions is growing in certain circles. But the partisan divide among lawmakers is high, Republicans control the Senate, marching in lockstep with the president, and Trump may be a major beneficiary of these tax breaks.
It’s impossible to establish that for a fact, however, because Trump is the first president in recent history to refuse to disclose his taxes. This makes it nearly impossible for lawmakers and watchdog groups to determine if or when policy directives present a conflict of interest in light of his many business endeavors. Whitehouse and Doggett wrote to senior Trump administration officials (pdf) in April requesting “communications that may shed light on the origins of the Republican provisions” following reports that beneficiaries of the tax giveaways may include Trump, Kushner, and real estate investors in Trump’s inner circle.
Notably, next week the Supreme Court will hear oral arguments in two cases involving disclosure of Trump’s financial records, which lawmakers sought from Trump’s accountants and bankers for oversight purposes. The president intervened, arguing that executive privilege shields his records, although precedent indicates otherwise. Seeing those records the president wants to keep secret could shed light on his ability to benefit from the CARES Act tax loopholes, Whitehouse said. But of course that depends on how the court rules.
What is certain is that groups representing millions of struggling American workers are incensed about the loopholes for the rich and eager to see them repealed. As their letter states about the tax breaks, “This is unconscionable!”