Federal COVID-relief law includes $160 billion in tax cuts for wealthy business owners and large corporations
By Kurt Wise, Senior Policy Analyst
Read the full “CARES Act: Costly Tax Cuts for High-Income Filers” brief here.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act — a law intended to deliver emergency, COVID-related federal relief — included large tax cuts for a small subset of high-income business owners (in particular, hedge fund investors and real estate developers) and for C-corporations. The total amount of these tax cuts — $160 billion over the next two years — turns out to be much larger than amounts provided in the bill for safety net programs (like food stamps), for state and local governments, or for hospitals.
The Joint Committee on Taxation estimates that of the $135 billion that will go to individuals with pass-through business income, more than 80 percent will go to just 43,000 households, all with income over $1 million a year. These fortunate few households will receive an average tax cut of $1.6 million over the next two years.
Notably, this latest round of generous tax cuts comes on top of the massive cuts provided to high-income filers and businesses in the 2017 Tax Cuts and Jobs Act (TCJA). The Institute on Taxation and Economic Policy (ITEP) estimates that in 2020 alone, the TCJA will deliver total tax cuts of $324 billion (including both individual and corporate tax cuts). Over half of this total will go to the nation’s highest income 5 percent of households. By contrast, the lowest 40 percent of households will receive only 5 percent of the total benefits.
In 2020, the top 1 percent of filers in Massachusetts will see a federal tax cut from the TCJA averaging $60,200, while those in the next highest 4 percent will see average cuts of $13,300. For the poorest 20 percent of households, the TCJA will deliver a 2020 tax cut averaging just $70.
While the TCJA clearly benefits the nation’s highest-income filers, it also set in place a number of new rules that would limit somewhat the tax cut total (which is estimated at $1.6 trillion over the 2018–2027 time frame). The CARES Act suspends many of these rules, removing various limits on the use of business losses to reduce taxable income. Some of these changes will allow businesses and certain high-income filers to amend prior year tax returns, going back as far as 2013. This will generate substantial refunds for many.
Just at the moment when state and local governments are being called on to do so much more, tax collections are headed for a historic collapse. Even with robust, sustained federal support, the Commonwealth will require substantial new, state-level tax revenue — now and in the years ahead — in order to avoid damaging state and local budget cuts. Efforts to raise this new state revenue should focus on those filers — both individual and corporate — that will profit handsomely from the federal tax cuts delivered through the CARES Act and the TCJA.
Kurt Wise is a Senior Analyst at MassBudget, focusing on tax policy.
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