At the beginning of March, as we worked to get ahead of the COVID pandemic, an amazing thing happened. Congress came together quickly and developed a broad package of measures to provide relief to families, workers and businesses to weather the COVID-19 crisis.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act included a broad range of tools: Direct payments to individuals and families. Expanded unemployment insurance benefits for unemployed workers. Lending programs for businesses of all sizes. And, targeted tax relief to help businesses continue operations and keep workers on payroll.
Our objective for the tax provisions in the CARES Act was twofold. Help individuals, families and businesses weather the storm caused by stay-at-home and shut-down orders; and lay as much of a foundation as possible for restarting the economy once businesses could start to reopen and Americans could get back to work.
The CARES Act came together through a bipartisan process over eight short days and ultimately passed the Senate 96 to 0 on March 25th. The House passed it by voice vote two days later, and President Trump signed it into law that same day.
As Chairman of the Finance Committee, my approach for the tax relief was to provide as much liquidity as possible and as quickly as possible.
For individuals, that meant providing the Treasury Department with authority to issue nearly $300 billion in Economic Impact Payments to families across the nation. It also meant giving individuals access to cash in retirement accounts, suspending required distributions from retirement accounts already hit by steep declines in the stock markets, and giving employers more flexibility to help employees with student loan payments.
Many of these tools are similar to ones made available to help families recover from natural disasters in recent years. They’re tools that can be implemented very quickly to help families access the cash they need to get through these difficult times.
For the business tax-relief measures, our approach was to modify existing provisions of the tax code, easing limits and restrictions, so businesses could apply them easily and quickly.
The key was for businesses to keep cash on hand, if they hadn’t already filed, or get refunds to give them the liquidity to keep the doors open, machinery running, and most importantly, employees paid, to the greatest extent possible.
We also used tax measures that have been employed in previous economic crises and natural disasters. In particular, we expanded the ability of businesses to use net operating losses or NOLs, just like Congress did in 2002 after 9/11, and in 2005 for taxpayers affected by Hurricane Katrina and again in 2009 after the financial crisis. Those were bipartisan relief efforts, just like the CARES Act. And, these provisions are temporary. They are designed to terminate after the recovery is in full force.
While it seems longer, the CARES Act was enacted just over seven weeks ago. In that time, Treasury has distributed the Economic Impact Payment far faster than expected. Americans have received approximately 140 million Economic Impact Payments worth $239 billion. Over 4.3 million small businesses have been approved for more than $500 billion of loans under the Paycheck Protection Program, and businesses of all sizes have started to use the tax tools we provided for liquidity.
But in that time, the critics have also done what they do best, criticize. The media has seized on any opportunity to perpetuate every negative story the critics can manufacture.
You can imagine my surprise when Democrats criticized the NOL carryback provisions in the CARES Act, since Democrats previously supported the last three bills where we expanded NOL carrybacks in 2002, 2005, and in 2009 – in the last instance, with all Democratic rule. I don’t recall, in any of those instances, any partisan attacks from Democrats about this previously bipartisan anti-recessionary policy tool. Why now?
Sadly, that irresponsibility has led our Democratic colleagues in the House to pass legislation that would take back important tax tools we just provided in the CARES Act – to the tune of a $254 billion tax increase on American businesses.
It’s hard to understand how the House Democrats think this makes any sense. Imposing a quarter of a trillion dollar retroactive tax increase on businesses in need of cash to restart their operations as states begin to lift shut-down orders is a recipe for disaster. It makes one think House Democrats don’t want an economic recovery, at least until they can help defeat President Trump.
Imposing such a tax increase when the country is facing unemployment levels not seen since the Great Depression fails the common-sense test.
It’s even more disturbing to the extent that the House Democrats’ proposal targets small businesses and other pass-throughs. Aren’t their losses just as real as larger corporations, and their need for liquidity possibly even greater?
According to the Tax Foundation, more than 90 percent of American businesses in recent years operate as pass-through entities. Pass-through businesses include some of those hardest hit by the pandemic, like farmers, restaurants, manufacturers, retailers and health care providers. And, they employ over half of American workers.
It’s critical that these businesses also survive this pandemic to ensure that Americans have jobs to return to as it becomes safe to go back to work.
I’ve heard some critics even suggest that allowing small businesses and pass-throughs to use their net operating losses is some kind of tax gimmick or loophole. Apparently, they don’t understand that these are real economic losses that businesses incur because there isn’t enough income to cover payroll, rent, utilities and other fixed expenses.
The whole goal of the CARES Act is to help businesses tap cash paid as taxes in prior years when times were good so they can survive the current crisis.
When we drafted the CARES Act, we didn’t pick winners and losers. The tools generally apply to all types and sizes of businesses – from farmers and sole proprietors to partnerships, LLCs and S corporations, to large corporations. And, they apply across all industries since nearly every sector is bearing the burden of the stay-at-home and shut-down orders across the nation.
Most importantly, we didn’t try to decide which jobs were more worthy of saving than any others. Our goal was to help preserve as many jobs as possible regardless of the business.
Those objectives were the right ones.
This partisan tax increase also flies in the face of anti-recessionary fiscal policy 101. Find me a credible economist who says we should raise taxes in a “normal” recession. It’s just common sense not to do so. In a normal business cycle downturn tax increases hurt, rather than help, the recovery. Why double down now in the greatest and sharpest economic contraction in modern history?
The House Democrats have reverted to partisan politics as usual in the middle of the worst pandemic in more than a hundred years and the worst economic crisis in nearly that long. Maybe they should think about former President Obama’s support for this kind of anti-recessionary fiscal policy back in 2009. What former President Obama said then should apply now: Don’t raise taxes in a recession.
Nevertheless, I’m hopeful that we can maintain the bipartisan spirit of the CARES Act in the United States Senate as we chart the next steps to reopen the economy and get America back to work.
While some businesses will feel the impact of this pandemic more than others, none of these businesses are doing well. They all deserve as many tools as we can provide to weather the storm.
What’s more, employers across the country who have been relying on the CARES Act shouldn’t be deterred by the misguided tax hike proposed by the House Democrats. That messaging bill can’t be allowed to undermine access to the capital needed to reopen their businesses, bring back employees, and win back the customers that made them successful before the pandemic struck.
And to the Democratic critics, I say: Let’s put away the partisan attacks and political pandering. Let’s keep working for the good of the country so our families, businesses and economy really can come out of these tough times on a strong footing and with the best shot at a rapid recovery.
