New GOP Proposal Would Create Tax Incentives To Spread Covid

As Congress prepares to pass another round of coronavirus relief, Republicans have once again fallen back to their failed cure-all solution: another tax cut. So far they’ve proposed cutting payroll taxes for high-income workers, cutting capital gains taxes for wealthy investors, and providing tax subsidies for business expenditures on meals and entertainment. None of these are particularly good ideas, but the latest one – introduced in the U.S. Senate by Sen. Martha McSally (R-AZ) and supported by some members of the Trump administration – may be the most ineffective, regressive, and counterproductive economic “stimulus” policies proposed to date.

McSally’s Tax Rebate and Incentive Program (TRIP) Act would provide a $4,000 per-adult and $500 per-child subsidy to families for travel and entertainment expenses on vacations to destinations at least 50 miles from home. The idea that this tax credit would boost the economy is totally irreconcilable with the argument made by many Republicans that vital economic support programs, primarily an expansion of unemployment insurance benefits, are hurting the economy by discouraging work. Encouraging workers who have jobs to take a vacation would almost certainly result in a far greater reduction of output than providing vital economic support to millions of Americans have either temporarily or permanently lost their jobs due to the coronavirus pandemic.

The TRIP Act is also incredibly regressive because the subsidy is structured as a non-refundable tax credit, meaning that it can only be claimed if the credit’s value is less than or equal to a household’s annual income tax liability. Non-refundable tax credits primarily benefit higher-income taxpayers and are of little-to-no use to low-income families and unemployed workers who don’t have an income tax burden to offset. This structure is fundamentally backwards, as the most effective forms of stimulus give money to people who will spend it out of need. It is particularly difficult for the government to encourage non-essential consumer spending with financial incentives in the midst of a pandemic, as evidenced by the fact that personal savings reached record highs in April while consumer spending plummeted following the disbursement of poorly-targeted stimulus checks from the CARES Act. More likely than not, the only people who would claim the credit are wealthy Americans who were already planning to travel anyway.

At a time when the number of new covid cases is rising in a majority of states and the national infection rate is the highest it’s been since April, the single best thing policymakers could do to support commerce is adopt policies that get the pandemic back under control. New research from the University of Chicago finds that over 90 percent of drop in consumer spending this year is attributable to fears of the virus rather than government policies. One example of a good policy to fight the pandemic and boost the economy would be a robust paid leave program, because it both improves the finances of low-income workers who don’t already have access to paid leave and encourages them to stay home when sick. The TRIP Act would do the exact opposite by encouraging people to travel unnecessarily and increase the risk of spreading the disease. McSally’s proposed tax credit might as well be called the “Spread Covid” credit.

Enacting the Spread Covid credit would only compound other Republican policy errors that are strangling our economy by worsening the pandemic, such as President Trump’s efforts to undermine testing that is essential to tracking and containing the spread of coronavirus. It’s an ineffective, regressive, and counterproductive proposal. Congress should swiftly reject this dumb idea and instead pass a fiscally responsible and well-targeted extension of support programs that will give our economy the boost it really needs.