To the Editor:
As Woody Guthrie put it, “I’ve seen a lot of funny men; some will rob you with a six-gun, and some with a fountain pen.” The retroactive repeal of section 461(l) in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136)1 was nothing short of a scandal. At a time when millions of Americans are struggling to pay their rent or mortgage and lining up at food distribution centers, the donor class did not let the coronavirus crisis go to waste.2
Section 461(l), as enacted by the Tax Cuts and Jobs Act for tax years beginning after 2017 and before 2026, limited the amount of losses from trades or businesses that a noncorporate taxpayer could use in a single tax year to offset other income. As originally enacted, the limit was $250,000 ($500,000 on a joint return), adjusted for inflation.3 Small business owners were effectively exempted from the application of the subsection because the rule did not kick in unless their businesses incurred more than $500,000 of losses in a single tax year and they had more than $500,000 of income from other sources in that year. The CARES Act removed that limitation for 2018, 2019, and 2020, which is great if you happen to own a professional sports franchise, mall, casino, or hotel chain. Once again, Congress ensured that no billionaire would be left behind.
Even before the pandemic, the federal budget deficit for fiscal 2020 was expected to approximate one trillion dollars. The various stimulus bills passed by Congress in 2020 are estimated to add another $2.8 trillion to that figure.4 The nightly news showed footage during the Black Lives Matter protests of isolated cases of looters breaking into retail stores, but the looting of the Treasury by the Forbes Fortune 400 does not lend itself to such visceral visuals.
The 117th Congress that takes office in 2021 will have to tackle the ballooning federal budget deficit. Although it cannot retroactively undo the CARES Act suspension of section 461(l), legislation can provide for recapture in 2021 of business losses in excess of $500,000 that were used to offset other income in 2018, 2019, and 2020. An election to pay the recapture amount over three years (à la section 965) could be provided. In this way, the Treasury raid enabled by the CARES Act would be converted into what would in effect be a short-term loan rather than an outright giveaway.
Lawrence M. Axelrod
Arlington, Va.
June 24, 2020
FOOTNOTES
1 Section 2304 of P.L. 116-136.
2 Former Mayor of Chicago and President Obama Chief of Staff Rahm Emanuel is credited with coining the admonition, “Never let a good crisis go to waste.”
3 Under section 461(l)(2), any disallowed loss was treated as a net operating loss carryover to the following tax year.
4 The Congressional Budget Office estimates that for fiscal 2020, the federal budget deficit will be $3.7 trillion.
END FOOTNOTES