WASHINGTON (CN) — Those making $1 million or more stand to benefit most from tax changes Congress adopted as part of the $2.2 trillion coronavirus-response package, according to the findings of a nonpartisan congressional report made public Tuesday.
The Joint Committee on Taxation had studied a feature of the CARES Act passed in March that allows the owners of what are known as pass-through businesses to claim as much as they want in excess business losses.
Unlike the corporate rate that usually applies to profits, pass-through businesses like partnerships and sole proprietorships are taxed at the individual rate their owners pay. The pass-throughs previously faced a $250,000 excess losses cap, which Republican drafters of the 2017 tax-cut bill put in place to meet certain deficit-reduction targets.
Without the cap, the nonpartisan congressional body found that nearly 82% of the benefit will go toward people making more than $1 million.
Those 43,000 households would see an average tax liability reduction of $1.6 million, according to the analysis, which also found that more than 97% of the benefit overall will go to people who bring in more than $100,000.
The findings were released Tuesday by Senator Sheldon Whitehouse and Representative Lloyd Doggett — Democrats representing Rhode Island and Texas — who requested the study on April 7.
Kyle Pomerleau, a tax-policy expert at the American Enterprise Institute, said suspending the cap could allow businesses to go back to earlier tax years and potentially receive quick influxes of cash to cover labor costs, rent and other expenses amid state-ordered shutdowns and mass stay-at-home orders.
“The general principle behind increasing the loss limitations in the CARES Act is to try to help businesses increase their cash flow during a time when demand for their product is effectively cratering,” Pomerleau said in an interview. “So the loss provisions is one way in the tax code you could do this.”
Whitehouse and Doggett called the tax changes a gift to the wealthy that focuses the government response to the coronavirus-induced economic downturn in the wrong place.
“Congress should repeal this rotten, un-American giveaway and use the revenue to help workers battling through this crisis,” Whitehouse said in a statement.
Pomerleau said the way the committee determines the benefits of changes to tax policy partly explains the imbalance revealed in the analysis, though he also noted most pass-through businesses are owned by wealthy people, making them more likely to see a benefit from the change.
The tax changes in the massive spending package have gotten considerably less attention that other provisions in the legislation, such as the $1,200 direct payments to most Americans and the $850 billion in loans and other relief to small businesses and major industries struggling amid economic slowdown the pandemic has caused.
The stimulus bill also includes other measures loosening rules on loss deductions, allowing businesses to lower tax liability in future tax years or to receive refunds from previous filings.