Coronavirus bill included tax break for millionaires

WASHINGTON — About 43,000 millionaires will receive an average tax cut of more $1.6 million thanks to changes quietly approved by Congress in its massive coronavirus stimulus bill.

The changes allow all businesses with net losses in 2018, 2019 or 2020 to seek refunds on previously paid income taxes, among other related reforms. While the changes will provide some relief to smaller businesses, most of the benefits will flow to wealthy business owners and partners, at great expense to the federal government.

According to the nonpartisan Joint Committee on Taxation, 82 percent of the benefits will go to owners of pass-through business owners who make $1 million or more in annual income. The millionaires who will benefit the most are hedge fund investors and real estate professionals, the Tax Policy Center found.

“They have given away millions and millions of dollars to the very wealthiest people in this country and it flew under the radar screen,” said Richard Pomp, professor of Law at the University of Connecticut and expert in federal taxation.

Although they voted for the $2.2 trillion stimulus bill that included this tax provision, now some Democrats, including Reps. Rosa DeLauro, D-3, Jim Himes, D-4, Jahana Hayes, D-5, and Sens. Richard Blumenthal and Chris Murphy, D-Conn., say they want to repeal it. Many Democrats have sponsored legislation to change the provisions, but it’s unclear if such a measure could pass the Republican-led Senate. Democrats have also asked leadership to make an amendment using the next coronavirus major package.

Democrats claim they didn’t know the tax break was in the nearly 900page stimulus bill at the time they voted. The tax break will cost the government over $150 billion this year.

“As small business owners struggle to access federal loans and working people are scrambling to make ends meet and keep food on the table, special interests in Congress have massive, retroactive tax breaks—going back to 2018—for the wealthiest in our country,” said DeLauro, calling the change an “outrageous boondoggle.”

Hayes said it was “egregious” that the changes apply to losses “that go back several years so that things that are not even COVID related and become almost a windfall tax break with no strings attached.”

“I had no idea about this provision,” she said. “While every day American get a one-time $1,200 payment, it doesn’t seem reasonable that people who are making more than $1 million would get a $1.6 million tax break.”

Reps. John Larson, D-1, and Joe Courtney, D-2, agreed that measure should have been more targeted.

Without naming Democrats,

chair of the Finance Committee, Sen. Chuck Grassley, R-Iowa, said lawmakers opposing the measures were “pandering for votes” and “driven by class warfare.”

Expanding the ability of companies to use net operating losses to reduce their taxes is a bipartisan method to aid businesses that was used in 2002 after the Sept. 11 attacks, in 2005 for taxpayers affected by Hurricane Katrina and in 2009 after the financial crisis, Grassley said. Over 90 percent of American businesses are pass-through entities — the business structure most likely to benefit from the changes — the Tax Foundation found.

“These businesses are facing cash-flow catastrophes,” Grassley wrote in an op-ed for Fox News. “What’s more, they employ more than half of the U.S. workforce. And yet, the partisan critics don’t want to allow some Main Street businesses to get a tax break for their losses if the losses are too great.”

The Joint Committee on Taxation estimated the relief will save C-corporations about $25 billion over the next 10 years and pass-throughs about $170 billion in that period.

Michael Jodon, a certified public accountant at CironeFriedberg, LLP, which has offices in Stamford, Shelton and Bethel, said many of his clients — a mix of privately held pass-through businesses, S-corporations and some C-corporations — will be able to adjust their taxes for a refund thanks to the changes.

“We have clients that are in the financial services businesses, we have clients that are in the energy businesses, we have clients which are in manufacturing, distribution and retail and pretty much everybody is touched by this,” Jodon said. “People that generate more taxable income are higher up in the brackets, so to the extent that these benefits are helpful to some of the people higher in the bracket, yeah they’re going to benefit a little more, but they also might have a little more on the line.”

Most ‘mom and pop shops’ won’t have enough excess business losses or other income to benefit significantly from the changes, Pomp said. Congress lifted a cap that had limited refunds for business losses. The cap was at $250,000 for individuals or $500,000 for joint filers. Individual business owners would have to had to have over $250,000 in other taxable income and over $250,000 in losses to take advantage of the lifting of the cap.

The tax break may reap benefits for many Connecticut residents because the states’ residents have some of the highest incomes per capita in the country and lower Fairfield County is one of the world’s most prominent hedge fund enclaves. Connecticut was home to 102 hedge fund investors in 2017 and 214 hedge fund managers, according to Preqin, a financial data company, second only to New York in the U.S.