Tax Provision in COVID Bill May Carry State/County Revenue Losses

A provision included in the massive COVID response legislation moving through Congress offers a new tax write-off for investors, and may reduce tax bases for states (and for Maryland counties).

income-tax-4097292_1920In the high-profile CARES bill accelerated through the U.S. Senate and pending House agreement (as of this writing), a provision amidst the many stimulus offerings is a structural change to the basis for taxing investment income.

From a discussion in the New York Times:

Senate Republicans inserted an easy-to-overlook provision on page 203 of the 880-page bill that would permit wealthy investors to use losses generated by real estate to minimize their taxes on profits from things like investments in the stock market. The estimated cost of the change over 10 years is $170 billion.

Under the existing tax code, when real estate investors generate losses from gradually writing down the value of their properties, a process known as depreciation, they can use some of those losses to offset other taxes. The result is that people can enjoy big tax breaks stemming from only-on-paper losses, even if they enjoy big cash profits in the real world.

A ten-year “score” of $170 billion suggests that the annual effect on Maryland could approximate very roughly (through some interpolation) $500 million in income for a state like Maryland – meaning perhaps a tax consequence of $25-30 million in state income tax revenues, and $14-18 million in county tax revenues. A change of this magnitude would, suffice it to say, attract very significant attention from Maryland state policymakers if it were proposed locally.

The full text of the CARES bill is available on a link provided by Axios, a news service. Their summary of its overall provisions:

Why it matters: The bill is the largest rescue package in modern history, and it offers thousands of dollars in direct aid to American families, billions in emergency loans to small businesses and industries hardest hit by COVID-19, and desperately needed resources to hospitals.

For more on the county effects of the CARES legislation,  see previous Conduit Street coverage: Feds Reach Deal on $2 Trillion Stimulus Package: What It Means for Counties

Michael Sanderson

Executive Director Maryland Association of Counties