4 Thoughts on Coronavirus and Taxes
Here comes some sort of economic relief legislation.
Before we get into this post, my book, The Billionaire Boondoggle, is turning one year old this week. It’s as relevant as ever, so if you don’t have a copy, grab one here or at your local independent bookstore.
Last week, Congress approved and the president signed an $8.3 billion bill meant to address the ongoing expansion of coronavirus cases in the U.S. But it’s becoming clear that more aimed at workers and domestic industries affected by the virus, rather than solely at vaccines and treatment, is required.
President Donald Trump’s team on Monday confirmed some sort of tax component is in the offing, including perhaps a payroll tax cut and corporate tax breaks aimed at the airline, hospitality, and cruise industries. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, is singing the same tune regarding “targeted tax relief.”
It’s too soon to tell exactly what we’re talking about here, and I’ll provide more updates as the shape of the legislation becomes clearer. But here are some initial thoughts:
1) In general, it’s ridiculously cheap for the government to borrow right now, so any money spent on worthwhile national projects will pay off. For years, it’s been a dereliction of duty on the part of the government to pass on borrowing to fix all the urgent national problems we’ve got; if coronavirus is the reason that changes, then OK. At the least, loaning super-cheap money to small businesses in any way even tangentially affected by the virus is a no-brainer. It should also go without saying that a program of national paid sick leave is long overdue in the U.S.
2) The payroll tax cut specifically — which would reduce the tax both employees and employers pay that funds Social Security, Medicare, and unemployment insurance — is … fine?
There are two issues that will make a payroll tax cut less than ideal if the goal is an economic boost: First, unlike during the Great Recession, the economy is not going to see a drop in demand because people don’t have money to spend or are so afraid of losing their job that they don’t want to spend it, at least at first. Instead, they won’t be spending because they’ll be staying home to avoid the virus, or because the stuff they want, such as hand sanitizer, simply isn’t available. So slightly higher paychecks isn’t necessarily the most efficient way to get more money into the system.
Second, cutting payroll taxes doesn’t do anything to help those who wind up losing their jobs or seeing their hours cut way back, like those who work in restaurants and other industries that are going to inevitably wind up dinged by the virus. But if Trump is so desperate for a payroll tax cut that he’s willing to give Democrats some important stuff — up to and including the elimination of the debt ceiling, which Democrats should absolutely use their leverage to take off the table as a negotiating weapon forever — then sure, go for it.
3) It’s pretty unclear what sort of bailout the administration has in mind for the hospitality-related industries it wants to help. Straight up rate reductions or some sort of tax deferral won’t do much, since businesses that are getting walloped won’t have profits to be taxed anyway.
If, instead, we’re talking about refundable tax credits or somesuch, then that’s a cash infusion. Is that necessary for the airlines, hotel, and cruise industries?
Well, cruise lines already are quite good at not paying taxes by registering in other countries, major hotel chains receive tons of subsidies and other government largesse, and major airlines also drive their tax rates down quite low. Delta Airlines, for instance, receives some of the highest tax subsidies in the country and paid a negative tax rate last year, according to the Institute on Taxation and Economic Policy. So how much more are they going to get, and is that the best way to keep them in business?
That determination will also be tangled up with the fact that President Donald Trump has refused to divest from his own hospitality-based businesses, so any bailout in that sector will help him personally (adding to the long list of grift-related impeachable offenses he has on his resume).
Also, there’s a 100 percent chance that any significant bailout of a particular sector helps the biggest corporations at the expense of their smaller competitors, just like big banks were able to get even bigger post-2008 financial crisis by gobbling up smaller institutions that didn’t receive federal help on the same scale. In recent years there has been widespread consolidation in the airline and hotel industries; a big economic rescue will exacerbate those trends. This will require close monitoring.
4) What most of this misses so far is the layoff component in the industries that are going to be hurt by the nature of the coronavirus crisis: Paid sick leave and payroll tax reductions don’t do anything for someone who just lost their job. That’s why something like worksharing — wherein payments are made to workers who see their hours reduced, alongside incentives for companies to engage in across-the-board hour reductions rather than layoffs — is far better than simply pumping cash into big businesses that are taking a hit. There needs to be some requirement that companies receiving government aid keep people employed, rather than pocketing a bunch of tax credits and then turning around and laying people off.
Technically, the U.S. unemployment insurance program allows for worksharing arrangements, but they’re rarely used: Just 17 states tried them during the Great Recession, reaching just 0.2 percent of workers in those states. Germany, though, employed this sort of program to great effect during that time.
As I said, it’s early days still, and I’ll keep you all updated on what the coronavirus response looks like more specifically as there are more specifics to be known.
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— Pat Garofalo