I gather it's a strong buyer's market, in which case this isn't really the saviour of the little guy.
Also worth considering, if these loss deductions always find their way to the guy with the highest marginal tax rate- is that really working as intended?
If you pay $6.9M for $7M in lower taxes, you make $100,000 for free and the little guy recovers $6.9M. Then one of the other million companies with net profit realizes they can net $90,000 by offering $6.91M. This is not what a buyer's market looks like.
Obviously no one is going to offer exactly $7M because they have to cover the transaction costs etc., but that's not even profit -- if they offer $6.95M because they have $40,000 in transaction costs, they're only making $10,000, but they still do it because they're still making $10,000. Until someone else is willing to make $5000.
It's a seller's market because there are more companies with net profits than net losses.
> Also worth considering, if these loss deductions always find their way to the guy with the highest marginal tax rate- is that really working as intended?
This one of the many reasons why graduated tax rates are inefficient as compared with something like flat rate + UBI (which can be equally progressive but doesn't have this problem), because it works that way for everything. The same thing applies to losses incurred directly by the big guy. Or if you create a deduction for green cars, someone paying a 35% marginal rate gets more from buying the same car than someone paying 15%.
But that doesn't apply to corporations anyway. Corporate tax rates largely aren't based on income. If they were, splitting an operation into multiple corporate entities would lower the tax rate and then everybody would do that.
The big problem is that people see and remember companies like Toys R US and Guitar Center that would be JUST FINE if companies like Bain capital hadn't loaded them with debt to pile in tax writeoffs.
Except that their strategy had nothing to do with tax write offs.
In theory what they were doing is borrowing money to buy an ailing company and turn it around, and as long as they succeeded they could have serviced the debt.
What they actually did was fail to turn the company around while charging it hundreds of millions in consulting fees, until it finally collapsed.
The way things were set up, if they succeeded in turning the company around, they would get the profit in excess of the interest. If they failed, they still get all their consulting fees and the lenders are stuck trying to recover their loan principal in bankruptcy.
That situation creates terrible incentives. Either they can be lazy and just collect consulting fees for doing nothing, or they can take big risks with house money and cash in if it pays off or walk away if it doesn't. The people who lent them the money were nuts. They would have been better off buying the company for themselves.
That's the problem with most of these situations -- people don't understand what's really happening.
Suppose you have a company that started off with $25 million thinking it would turn it into fifty million, but really it turned it into five million. Then the company is still worth $5 million dollars, right? Except that it has a $20M tax loss, which is worth something. When other people have profits they're paying a 35% tax rate on, the tax loss has a market value of $7M, so the company is actually worth $12M.
Which means that's what richie rich who wants to use the tax loss has to pay for it, since the seller can shop the tax loss to the highest bidder and get close to the full value for it. The money isn't going to the rich guy, it's going to the guy with the tax loss.
Which means it's a rule that helps the little guy. If you take a risk and fail, it allows you to at least recover as much of your investment as the big guy with diversified investments would have had as a tax deduction -- i.e. it prevents creating a disadvantage when the little guy takes a risk vs. the big guy. And if you have creditors, the buyer has to make them whole in order to take the tax loss, which makes them more likely to lend to you to begin with.
But people see the result that rich people are getting a tax deduction and clamor to get rid of the rule.