The $2 trillion COVID-19 aid package passed in late March known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act was supposed to offer much needed relief to Americans suffering from the global pandemic and our national economic shutdown. But while the package had some good pieces (expansion of unemployment insurance, paycheck protection program, and direct cash payments), it also had a few truly inexcusable giveaways to the rich and powerful.
At the last minute, with many Senators not even getting a chance to fully read the bill before voting on it, Senate Republicans managed to sneak in a small tax change that adds up to big money, around $135 billion that almost exclusively goes to millionaires.
You might have heard about the “Millionaires Giveaway” or the “Grassley Giveaway” already, but what exactly is it? Here’s some background that you need to know to understand this tax break:
Depreciation – Under the current tax code, businesses can “write down” the cost of their properties, claiming losses that technically happen on paper (even if they don’t match reality), and use that to offset the taxes they would owe on their actual income. For example, a real estate developer could claim that a building he owned depreciated, or dropped, in value by $100,000 over the last year (even if the value of the property actually went up), and therefore deduct that $100,000 from the actual income he earned.
Limits in the 2017 Tax Cuts and Jobs Act – Under the 2017 rewrite of the tax code, only the first $500,000 of a married couple’s losses ($250,000 for a single filer) can be counted for depreciation purposes. Losses above that $500,000 limit must be rolled over to future years. This limit stops many wealthy people from completely canceling out their annual income.
The Millionaires Giveaway in the CARES Act – Under the CARES act, this $500,000 limit was lifted for three years for people with nonbusiness income – dividends, interest, rents, royalties, and capital gains – i.e. like real estate moguls and hedge fund managers. These people can count all of their “losses” for this year and the last two years retroactively, from 2018 and 2019 – years before the economy was affected by the global pandemic – to rack up huge tax breaks.
This is nothing short of a boondoggle for the wealthy. The IRS estimates that the group able to take advantage of this almost exclusively lies in the top 1% of tax filers. In fact, over 80% of the benefits of this tax break will go to those who earn more than $1 million annually, according to the nonpartisan Joint Committee on Taxation. Almost 95% of the benefits go to those earning over $200,000 a year.
Just how large of a tax break will this be? It is estimated that the break will cost some $135 billion. The roughly 43,000 Americans who can now take full advantage of depreciation and make over $1 million a year can expect to see an average tax cut of $1.6 million this year alone. While average Americans were given a measly $1,200, these 43,000 millionaires are laughing all the way to the bank.
This bill was intended to help Americans during a global pandemic and economic collapse – yet nothing about this change actually addresses the economic challenges currently facing the country. These tax cuts are going to people who have more than enough money to weather the crisis without government assistance, while doing nothing for those who actually need help. There are no strings attached to this handout to the rich: no requirement that wealthy recipients use the windfall to retain employees, no requirement they use it to respond to or recover from the pandemic, and no requirement they show they lost money because of the pandemic.
It’s time Senate Republicans stop lining the coffers of their wealthy donors and large corporations, and instead focus on the needs of Americans. At a time when nearly every aspect of life has changed, and when the country is facing an economic collapse, we need strong leadership and a prioritization of everyday people.