Criticisms of the CARES Act
The two provisions in question allow companies and individuals to write off business losses they accrued before the pandemic hit and the losses they will accrue during the crisis. Both provisions also did away with previous caps on the total amounts that companies and individuals could write-off.
While most businesses in the United States are organized as pass-through entities, this provision would not benefit most mom-and-pop shops: most small business owners would never amass up to $500,000 in non-business income. As the National Taxpayers Union Foundation wrote in a blog post defending these policies, “the limit only applied to high-income filers in the first place.”
Critics of these provisions argue two points: first that they are unnecessarily costly, and secondly, they disproportionately benefit those most who don't need it. Although these provisions can potentially help businesses who have been heavily affected in recent times, one could argue that the real winners are society’s millionaires and billionaires, who, most people would argue, do not qualify as needy.
Tax experts also suggest that it’s not just the wealthiest taxpayers that will benefit from these provisions. Real estate investors and hedge fund managers are also likely to be benefactors. This can be explained due to their business models, which rely heavily on writing off losses like depreciation.
For example, two companies that could see a significant windfall from the provisions are the Trump Organization and Kushner Companies. For better or worse, this connection to the president will no doubt cause scrutiny.
Some small business owners are scornful of these provisions. As small businesses and individuals struggle to obtain federal aid, the wealthiest are poised to reap tens of billions of dollars in tax savings.
The economic rescue package that became law last month is giving $174 billion in temporary tax breaks. They're intended to help small businesses, but they're going overwhelmingly to rich individuals and large companies. If one were to be cynical, they could make a strong case that these provisions are deliberately packaged in a way to satisfy small business owners while the true motives are clearly not publicized.
Another example of where a provision only has positive effects for the super-wealthy is the restriction on how much interest companies can deduct from their tax returns. That restriction only applies to companies that have at least $25 million a year in receipts.
Again, that restriction is going to be lifted temporarily so that companies with at least $25 million in revenue are able to maximize their interest deductions. This particular restriction has been lobbied on for the last couple of years by different companies seeking favorable regulations in the Treasury Department.
A fair analogy would be to look at the environment: on one side you may have energy companies, and the other side you may have organizations such as Greenpeace. There is no real public interest lobby on these kinds of obscure corporate tax provisions; there is no tax version of Greenpeace. These are things that are driven by and really only understood by a very small number of tax lobbyists. Therefore, they are allowed to go mostly unchecked because most of the public remains ignorant.
The question we ask shouldn’t be whether or not this sort of conduct should happen. Instead, the question should be whether people are hiding their true motivations behind creative language and seemingly noble provisions.
For a look at what the CARES Act is intended to accomplish, check out 2020 CARES Act - Financial Supports for Small Business from the University of Nebraska.