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Net Operating Loss Measure Under Consideration in Senate Has Low Bang-for-the-Buck as Stimulus: No Justification for Waiving PAYGO for the Provision

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Publication Date: February 2008

Publisher(s): Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Aviva Aron-Dine

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Economic projections; Corporate finance; Tax code

Type: Report

Abstract:

A business experiences a “net operating loss” when its tax deductions exceed its income. Under current law, businesses may use their net operating losses to reduce their previous two years’ taxable income, in which case they receive refunds of taxes paid in those years. Businesses also may use these losses to reduce their taxable income in any of the next 20 years. Senator Reid’s proposal would extend the “carryback” period from two years to five years for net operating losses that were or are incurred in 2006, 2007, or 2008. A similar provision was included in the Senate Finance Committee version of the first economic stimulus package but was not included in the final legislation.