Menu
Tax Notes logo

NOL, Interest Deductions Should Be Extended, Economist Says

Posted on June 19, 2020

Congress should extend the changes made to net operating losses and business interest deductions as a part of further tax relief during the coronavirus pandemic, according to one witness at a congressional subcommittee hearing.

“There are still a lot of individuals and businesses that need relief,” Kyle Pomerleau of the American Enterprise Institute said at a June 18 hearing of the House Ways and Means Select Revenue Measures Subcommittee. “For businesses, I think that if the downturn continues and the economy is still south, I think that extending the net operating loss provision or the expansion of the net interest deduction provision is appropriate.”

The Coronavirus Aid, Relief, and Economy Security (CARES) Act (P.L. 116-136) allowed businesses to carry back NOLs up to five years and increased the limitation on the deductibility of business interest expense under section 163(j).

However, those changes have been unpopular with Democrats and some organizations. After the Joint Committee on Taxation found the provisions disproportionately benefit high-income taxpayers, more than 200 national and local advocacy organizations called for their repeal.

Pomerleau also urged Congress to look ahead and revisit provisions from the Tax Cuts and Jobs Act that expire in coming years.

“In 2022, the 100 percent bonus depreciation will start to phase out,” Pomerleau said. “Around the same time, intellectual property investment will need to be amortized. These are things that could work against the economy, that would reduce cash flow, and could be paused if the economy is still not up and running by then.”

Push for Expanded Credits

Four of the five witnesses at the hearing called for an expansion of the earned income tax credit and the child tax credit.

Expanding the credits would be especially helpful for families and would provide an equitable policy response to the economic hardship for women and minorities, said Amy Matsui of the National Women’s Law Center.

Martha Rodriguez, a preschool teacher from Washington, said that both she and her husband have been laid off from jobs and don’t know what their income will be like over the next year. “Increasing the earned income tax credit and the child tax credit and making it fully refundable would give us peace of mind that our challenges this year won’t hurt us for years to come,” she told the subcommittee.

The House-passed Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act (H.R. 6800) includes expansions of both credits, but the Senate has yet to take up any portion of the bill.

Copy RID