COVID relief package contains $ 120 billion giveaway to the super rich – Mother Jones
In July I written about how lawmakers on both sides were supporting a COVID relief provision that, in fact, is a massive and unnecessary bailout for America’s wealthiest business owners. Congress never managed to come together on this particular bill, so the effort was tabled for a while, but guess what: He is back, and even better for big fish.
The bipartisan provision, which the IRS and also, oddly enough, Treasury Secretary Steve Mnuchin oppose, is known as the “double dip” advantage. It allows businesses that obtain PPP loans – which the new COVID bill aims to expand – not only to have those loans canceled, but to be able to deduct the loan amount spent on business expenses from their taxable income.
Obtaining either benefit seems reasonable, but allowing both would be a major departure from accepted policy and an unprecedented waste of taxpayer money, critics say, mostly benefiting wealthy law firms. lawyers, accounting firms and other well-to-do. go through ‘the companies that have dominated the process.
On December 2, the New York Times reported that about a quarter of all PPP money went to only 1% beneficiaries, including highly profitable businesses, including white-shoe law firms run by Donald Trump’s personal lawyer Marc Kasowitz and famous lawyer David Boies.
Steven Rosenthal, tax lawyer and senior fellow at the association Tax Policy Center calculated that the previous version of the double-dip proposal would have represented a stealthy $ 100 billion to $ 150 billion break, heavily skewed in favor of the nation’s wealthiest business owners. Martin Sullivan, expert in federal tax law and former economist for the Treasury Department and the bipartisan Joint Committee on Congressional Taxation, valued the cost, on the back of the towel, of about $ 100 billion.
The last package is expected to expand the PPP program and make loans more flexible and therefore easier to remit. In a blog postAdam Looney, a senior researcher at the Brookings Institution, points out that “for the affected group of middle-class business owners, about 70 percent of business income is earned by the richest 1 percent of taxpayers. Therefore, most of these deductions would be used by higher income taxpayers and save them $ 0.37 to $ 0.396 in taxes for every dollar they deduct. He keeps on…
The bipartisan proposal – the final bill that comes to the ground may be different – provides about $ 268 billion more in P3 funds. If we assume that total P3 funding will reach $ 700 billion and the average corporate owner tax rate is 29%, that represents a tax windfall of $ 203 billion. Even if only 60% of that goes to the richest 1%, it’s a windfall of $ 120 billion for affluent business owners.
“It’s hard to imagine a tax cut of this magnitude and still so targeted at those who need it least,” Looney said in an email.
My previous article quotes Kimberly Clausing, an economist at Reed College who specializes in business and taxation, and who had taken to Twitter to explain why double dip doesn’t make sense. (I changed the numbers, but same idea.)
Suppose your small business has $ 1.5 million in sales and $ 1 million in salaries and other eligible costs. The pandemic strikes and sales drop to $ 500,000. Slim! Your profit of $ 500,000 has just turned into a shortfall of $ 500,000. So you get a PPP loan of $ 1 million. You follow the rules and your loan is canceled. Clausing offers three scenarios:
Scenario 1: The IRS considers your loan to be taxable income, so your overall income is now $ 1.5 million as before. But the tax agency allows you to deduct payroll and other expenses covered by your $ 1 million loan. You have $ 500,000 left. “This reflects the true profitability of the business,” she writes.
Scenario 2: The IRS allows you to exclude your canceled loan from taxable income, but it does not allow you to then deduct the covered business expenses. The result is the same. You still end up with taxable income of $ 500,000 and your employees get paid. This is the scenario favored by the IRS.
Scenario 3: This is the double dip scenario. IRS allows you to exclude the canceled loan from your taxable income and allows you to deduct these business expenses. You now have $ 500,000 in income and $ 1 million in deductible expenses. You report a loss of $ 500,000 on your taxes, even if you made $ 500,000. This is a gift to the wealthiest business owners and investors, who own, according to a 2019 Goldman Sachs analysis, 56% of the total value of all stocks, public and private, held by American households, none of which would be required to pass this money on to workers.
“The payday deduction should not be allowed if the loan forgiveness is not included in income,” Clausing tweeted. “To do otherwise is both very expensive and unnecessary. It also sets a bad precedent for future tax policy.
Some businesses are in dire straits, of course, and need our help. But if Congress wants to bail out independent bars and restaurants and so on, there are better ways, says Rosenthal. They could test double-dip resources or cap the size of companies allowed to apply. (In the first round, notoriously, the large restaurant chains owned by private equity firms raked in P3 funds.) Democrats, who also agree. (House Dems adopted a double dip provision in their doom HERO Act.)
One prominent Democrat who has questioned the arrangement is Texas Rep. Lloyd Doggett. “Allowing a deduction for an expense never incurred is unjustifiable,” he said. Mother Jones in July, adding, “This approach delivers the most for insiders who have secured the largest and fastest P3 loans.” ”
But the lobbying has been intense. “There are a lot of wealthy business owners applying very strong pressure in every congressional district across the country. We can’t even convince the usual champions to stand up on this one, ”Rosenthal said. “We are going to lose.”