Tax-Loss Carryback Provision Glides in Congress
Congress appears to be on the verge of giving a $30 billion-plus handout to U.S. corporations but—unlike so many other spending provisions—this one is provoking little opposition on Capitol Hill. The legislation would tweak corporate tax rules that would allow businesses to apply losses sustained in recent years against taxes on profits paid in earlier years. It would do this by extending the so-called net-operating-loss carryback period for firms of any size from two years to five years and would apply to losses for both 2008 and 2009. A similar expanded loss-carryback provision was part of the Obama Administration's original fiscal stimulus plan, but the final bill was cut back to apply only to small businesses. The loss-carryback provision is part of a larger bill extending unemployment compensation. On Nov. 2, the Senate approved a cloture motion on the bill 85 to 2. The measure can now be debated for only 30 further hours, after which it will be pushed onto the floor for final passage. Policy analysts believe the bill won't face interference in the Senate and will clear both houses of Congress by week's end. A provision for such a rule is already built into the Obama Administration's budget. The seemingly arcane provision would mean a lot of money for businesses that experienced the past decade's boom-and-bust economy. Many companies enjoyed record growth during the housing-driven boom, paying dearly in income taxes. The tide turned sharply over the past two years, when the financial crisis brought record losses, so companies now want the tax money they paid during flush times to help offset the red ink. Stimulus Carryback Bore Tight LimitsIt seems that Congress and the President are more than willing to give it to them in hopes of saving jobs and keeping some industries afloat—despite the price tag. According to a study by the National Bureau of Economic Research, the extension would inject $34 billion into U.S. businesses. "That's a lot of money to be pumping out," says Daniel Clifton, head of policy research for Strategas Research Partners. "It will have a significant impact." Although many industry lobbyists were pushing for tax relief since the early stages of the recession, they were given little help when the rules were tweaked as part of the stimulus plan that passed earlier this year. The stimulus wound up offering an extension of the carryback period only to companies with less than $15 million in annual revenues and only for 2008. While this helped many small business owners, midsize and large companies in sectors hardest hit by recession were left to weather the storm. A key beneficiary of the new changes would be the homebuilding industry. Builders paid record levels of income tax earlier this decade as the housing bubble grew. When it burst, the industry wanted to recoup the taxes to keep homebuilders nationwide from having to shelve their hammers for good. After lobbying for more than two years, the National Association of Home Builders is pleased that all of its members—not just small business owners—are about to receive a windfall. It is confident that the bill will pass, possibly as early as Thursday, Nov. 5. Newspapers Would Gain Vital Cash FlowJerry Howard, the association's CEO, claims the tax credits from the carryback extension will provide midsize and larger homebuilders enough funding to save 30,000 jobs that would have been lost without government assistance. "Many of these medium-sized homebuilders that are struggling to keep their doors open will see an infusion of capital that will give them the ability to stay in business until the economy turns around," says Howard. "There won't be any more jobs lost. That's the bottom line." While the housing industry seems to have the most to gain from the bill, other industries stand to score breathing room, too. Auto suppliers have been ravaged by the near extinction of two of Detroit's Big Three and would welcome further capital from the government. Newspapers, hard hit by the loss of advertising revenue in the downturn, could also benefit. While the newspaper industry's problems would be far from solved, the new law could help publishers sleep better at night. "It will give newspapers much-needed cash flow," says Kathy Mason, vice-president of government affairs at the Newspaper Association of America. "They'll avoid having to make cuts." Some very big companies still lie beyond the reach of the government's shower of tax dollars: the nation's largest banks. While they were among the recession's greatest losers and seemingly need all the help they can get, few will benefit from the proposed law. Any company that received money from the federal Troubled Asset Relief Program is exempt from the new rules and cannot benefit from the proposed extension.