U.S. Senate Passes Tax Loss Credit for Business

U.S. companies of all sizes would get to apply losses in 2008 or 2009 to prior income over five years to receive tax refunds under a bill that passed the Senate by a unanimous vote Wednesday.

The provision was added to broader unemployment insurance legislation at the behest of corporate lobbyists who are looking to Congress for tax breaks to help revive the U.S. economy.

The bill approved by the Senate would let companies with net operating losses apply them to full-year taxable income for the prior four years and to 50 percent of income in the fifth year. It is expected to be approved quickly by the House of Representatives and sent to the White House for President Barack Obama to sign into law.

Business groups such as the National Association of Manufacturers say it is an important tool to give cash-strapped companies immediate access to capital. It would cost the government about $10.4 billion over a decade, according to congressional estimates. Some critics of the policy said it was corporate welfare.

A consumer group and other critics are calling it corporate welfare.

“There is no reason to think this change would lead to greater investment or to the creation or retention of jobs,” Citizens for Tax Justice, a consumer group, said in a note opposing the policy.

“Allowing a company to use its current year losses to get a refund of taxes paid in the past does not lower the costs of doing business or make it easier to profit. It would simply hand cash to business-owners who are not profiting currently.”

In the wide-ranging economic stimulus law passed earlier this year, small businesses with gross receipts of less than $15 million were given a five year carry-back for 2008.

(Reporting by Kim Dixon; Editing by Dan Grebler)