The CARES Act will cost Oregon, too: what one hand giveth, the other taketh away

abstract business interior double exposure

When President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law on March 27, 2020, the assumption was that the largest-ever economic stimulus package in U.S. history would be a cornucopia of goodies.

But buried within the law are provisions that are likely to actually reduce revenue in Oregon by millions. As the saying goes, what one hand giveth, the other taketh away.

The CARES Act includes several provisions expected to affect state revenue. The largest:

  • Allow the deduction of “excess” losses by non-corporate businesses that would otherwise exceed a threshold established in the Tax Cuts and Jobs Act of 2017;
  • Allow net operating losses for individuals, estates, and trusts to be carried back for up to five years, and delimiting the amount by which these losses may be used to reduce taxable income;
  • Increase the percentage of business interest income that is tax deductible; and
  • Suspend required minimum distributions from retirement funds, allowing some retirees to let their fund balances recover before making distributions and incurring tax liability.

The CARES Act is expected to reduce federal taxable income for tax years 2018 through 2020, thereby reducing Oregon taxable income in each of those years. Taxpayers will be able to amend 2018 and 2019 tax returns in order to benefit from the additional deductions, which will reduce state income tax revenue when the amended returns are processed and a portion of taxes are refunded to taxpayers.

The CARES Act didn’t include financial relief for states struggling through the COVID-19 downturn. Nor did the $484 billion coronavirus relief package Trump signed on April 24.

House Democrats are pushing for another bill that would beef up state and local government finances and help offset some of the losses noted above, but Senate Majority Leader Mitch McConnell and President Trump are resisting. Both said earlier this week that there isn’t yet a need for Congress to pass additional legislation.

 

 

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