House Democrats passed a massive COVID-19 relief bill on Feb. 26. The Senate is expected to vote on the legislation within the next week. Credit - Drew Angerer—Getty Images
The Democratic party’s unified control of Washington has put them within striking distance of fulfilling a key campaign promise: a coronavirus relief package that will send $1,400 checks to lower and middle-income Americans, extend federal unemployment insurance through the fall, and allot nearly $130 billion to re-open K-12 schools.
But it’s also notable what won’t make it in the massive bill. The $15 minimum wage increase is now on the chopping block after the Senate parliamentarian ruled it fell outside the bill’s budgetary confines. Senate Democrats nixed an alternative plan to raise taxes on corporations that don’t pay employees a living wages to ensure the bill reaches President Biden’s desk before unemployment benefits lapse March 14. And in a break from the previous two packages the Democratic-led House passed last year, there is no language repealing two tax breaks that primarily benefited billionaires and millionaires. The tax breaks were initially estimated to cost $170 billion in lost revenue over the next decade. Lawmakers leading the repeal effort now claim revoking them would save the government $250 billion.
But these tax breaks were only in effect for 2020. And with the filing deadline for that year only six weeks away, many recipients have already reaped hundreds of millions in windfalls, according to to TIME’s review of Security and Exchange Commission filings and available federal data. Economists on both sides of the aisle say that hopes of clawing back that cash is a pipe dream. “The cow’s already left the barn on this one,” says Steve Rosenthal, a senior fellow in the Urban-Brookings Tax Policy Center, who criticized the tax breaks last year.
Still, lawmakers leading the charge to repeal argue that if the tax breaks remain intact, companies and individuals will continue to file for benefits with the remaining time left. “Republicans slipped special interest provisions that loot American taxpayers into must-pass COVID relief legislation. We ought to unravel that boondoggle, which mostly benefited millionaire hedge fund managers and real estate investors, and use the revenue to help the American people recover from the pandemic,” Senator Sheldon Whitehouse, who organized a Feb. 2 letter from 120 Democrats to Congressional leadership urging a repeal, said in a statement. “It’s basic fairness.”
For Democrats, including President Joe Biden, who campaigned on the promise to deliver an equitable economic recovery, the resulting legislation is emblematic of a broader challenge. Since the pandemic began last March, at least 150,000 businesses are estimated have closed and 1 in 4 Americans have had trouble paying their bills, but billionaires have gotten richer. According to a report from the Institute for Policy Studies and Americans for Tax Fairness, billionaire wealth has risen by $1.3 trillion since last March. Even as Democrats are poised to pass a vast relief package that economists predict will boost growth and provide welcome relief, the party will continue to encounter hurdles in ensuring the country’s wealthiest don’t continue to disproportionately benefit while the middle and lower classes struggle to simply get by.
What the Tax Breaks Are And How Companies Have Already Benefitted
The two provisions Democrats want to repeal deal with what’s known as net operating loss carrybacks (NOLs), an arcane tax provision that allows individual and corporate taxpayers to retroactively claim losses to receive tax refunds. The CARES Act allowed companies to carry back losses—and chalk up refunds—for five years back from the tax years 2018, 2019, and 2020 – so as far back as 2013. The bill also temporarily lifted the $500,000 cap (for a married couple filing jointly) on what non-corporate taxpayers could deduct to offset losses against their non-business income—a benefit that went primarily to the very rich, since average Americans generally don’t have that kind of excess income.
Democrats voted overwhelmingly for the CARES Act last March, but Democratic aides later acknowledged that, in the rush to pass the bill, they had not realized the full implications of the tax breaks. When the non-partisan Joint Committee on Taxation issued an analysis April 9 estimating that 80 percent of the beneficiaries of the provision dealing specifically with non-corporate taxpayers were millionaires and billionaires the backlash was fierce. The same day the JCT issued its analysis, then-candidate Biden called for a repeal, claiming he would use the excess money to fund up to $10,000 in student debt relief. House Democrats inserted repeal language into the HEROES Act, the relief package that passed the House last May and again in October, which would permanently reinstate the $500,000 limitation and only allow companies to offset losses from 2020 to two previous tax years.
But the House Democrats’ repeal efforts did not stand a chance in the Republican-led Senate, and thousands of taxpayers flooded the IRS requesting refunds. According to a November report from the Government Accountability Office, more than 8,400 taxpayers had applied for NOL refunds by mid-October, costing the government roughly $632 million in lost revenue. (For that estimate, the GAO grouped NOL and alternative minimum tax refunds). While the GAO noted that the average refund for these refunds was less than $100,000, SEC disclosure filings show some companies received much more than that. In an August filing, the life insurance company Global Atlantic Financial Group disclosed that it had recorded a $33 million windfall that June. The retail chain Kirkland’s recorded a $12.3 million refund in August. The Fortune 1000 oil company Adams Resources and Energy received an approximate $2.7 million refund in June. (None of the companies immediately responded to request for comment).
Congressional Republicans defended these tax breaks on the grounds that they would bolster companies’ liquidity, but some of these recipients have weathered the same pandemic relatively unscathed. In the same filing disclosing its $33 million tax refund, Global Atlantic Financial Group said that, as of June 30, it “has not experienced significant disruptions to its business, its ability to serve its customers, or its financial condition as a result of COVID-19.” In July, the global investment firm KKR announced it was acquiring the company. By February 1, when the acquisition officially closed, the company’s assets had grown 25 percent, according to a press release from KKR. “Since we announced this transaction, Global Atlantic’s success has been remarkable, and in many ways we are well ahead of our initial expectations,” Joseph Bae and Scott Nuttall, Co-Presidents and Co-Chief Operating Officers of KKR, said in the press release.
The Battle For This Repeal
For tax experts who both supported and opposed the provisions, these examples are precisely why it’s too late to repeal them. Garrett Watson, a senior policy analyst at the Tax Foundation, a non-partisan organization that supported the tax breaks, says that any repeal would disadvantage taxpayers who are in the process of receiving the funds. “The time for deciding whether this made sense was probably last year just so there was certainty for firms, particularly smaller ones,” he said. “Theoretically If you did want to selectively change this right now that could be another way to get at it but it’s not clear why that would be the priority, especially when you compare it to changes that are more forward looking.”
The fiscal incentive for repeal is also dwindling. Democrats were in agreement in drafting the package that the need for relief prioritized any need for budgetary offsets, according to one Democratic aide. And while the JCT estimated in October that
a repealing the tax breaks could save the government $250 billion, that was assuming these refunds could be clawed back, according to a Senate aide. Since experts now agree that’s exceedingly unlikely, the fiscal calculus changes. “As soon as it was passed, there were taxpayers in a position to file amended tax returns and get refunds,” says Robert Lord, a tax lawyer and associate fellow at the progressive Institute for Policy Studies. “It was a travesty,” he adds, “but once it happened, they filed their amended returns and received the refunds, it seems like it’s pretty hard to undo that.”
The politics of repeal are also tricky, particularly when implementing it would become easy fodder for Republicans to paint Democrats as raising taxes during a recession. Tax increases are still on the table for a subsequent recovery package later this year, and Sen. Elizabeth Warren introduced a proposal for a wealth tax on March 1. But aside from the letter Democrats circled on Feb. 2 there seems to be a tacit acknowledgement, that with such a slim majority in both chambers and expirations for relief deadlines rapidly approaching, this just isn’t a fight worth having. Congressional Democrats were in agreement that this package should focus on relief, and that measures to offset spending was not a focus, according to one Senate aide. “It really hasn’t been something people have gotten behind as much as they should, because there are other issues which are important,” says Tennessee Rep. Steve Cohen, one of the leading signatories on the Democrats’ letter calling for a repeal. Cohen says he pushed the repeal on caucus calls, but hasn’t gained any traction. “It’s not going to score political points,” he says. “It’s not a deliverable. All you’re going to do is p-o people and you’re going to p-o people who are wealthy and probably contribute a lot of money.”
All of which underscores the longer term challenges facing the Democrats. Even with the party’s newfound power and promises to address the ever-widening wealth gap, it still remains much easier for corporations and individuals to chalk up hundreds of millions in tax breaks than it is to increase workers’ minimum wage. It’s a structural problem the party will have to grapple with long after the last IRS refund from these tax breaks have been issued.