Martha McSally’s TRIP Act is very regressive

Senator Martha McSally (R-AZ) has a plan to boost the American economy: direct thousands of dollars in subsidies for families to go on vacation, but only if they are reasonably wealthy.

Complying with the United States Tax Incentive and Refund Program Act, or the United States TRAVEL Act, which McSally says, “will help drive domestic travel and drive the return of our hotels, entertainment sectors, local tourism agencies and the thousands of businesses that make Arizona one of the best places in the world to visit, “encouraging Americans to” get out of their homes safely and discover or rediscover Arizona along with the rest of the incredible destinations that our country has to offer after several months of difficulties. “

The plan does not include an extension of emergency financial assistance that keeps households afloat; which still expires later in the summer.

The proposal is for a non-refundable tax credit – $ 4,000 for adults, $ 500 for children – in 2020, 2021 and 2022 for expenses related to domestic travel that take a person more than 50 miles from home. It is a strange form of stimulation. If viewed as financial assistance to households, it specifically targets money in a way that nearly half of American families will not be eligible to receive, including almost everyone who could objectively use the most amount of help.

And if the idea is simply to help businesses that are suffering due to public health issues, it might be better to avoid those concerns simply by funneling money, especially since the existing Check Protection Program (PPP) will expire soon.

McSally’s plan is taken more or less directly from the travel industry lobby, and she was on tour in Arizona with President Donald Trump as he deployed it, so it attracted a fair amount of media attention. Whether it will really end up on the Senate floor for a vote is another story. Still, at a time when real Americans are suffering from job losses, businesses are struggling to survive, and a pandemic is unleashed, a leading senator comes up with a policy proposal that does nothing for workers or employers and puts all at risk by encouraging potentially dangerous behavior. .

How the TRIP Law would work

To get quality for the TRIP money, as it is called, you would need to take a trip to somewhere within the United States that is at least 50 miles from your primary residence. Accommodation, travel and entertainment costs would qualify. Also, if you own a second home, “expenses related to live entertainment, food and beverage, and transportation qualify, but expenses related to housing do not qualify.”

In other words, if you drive to your vacation home, you can use the tax credit to cover the cost of your meal but not to cover the expenses associated with the home itself.

The implications of this are somewhat strange. The stated intention is to encourage vacation travel. But the way the bill is written, a white-collar professional who works remotely during the pandemic and owns a vacation home could just move out for a while and get thousands of dollars in tax credits for the meals that anyway would have bought. By contrast, a service sector worker with limited vacation time would, in fact, have a strong incentive to take a short but very expensive vacation.

But there are two captures.

One is that it is a tax credit, not the government that sends you a gift card in the mail. If you have $ 4,000 (or $ 8,000 for a couple, and potentially more for a family with children) in the bank to go on vacation, you’ll end up getting your money back when you file your taxes next year. But if you live from paycheck to paycheck, McSally isn’t giving you any extra money. Therefore, people who are more likely to be incentivized to undertake trips that they would not otherwise have are less likely to use the program.

That is exacerbated by the reality that the tax credit is non-refundable. A refundable tax credit allows people to owe less than zero income tax (in effect, offsetting their payroll tax burden), while a non-refundable one applies only to people who have a positive tax burden on the rent. Thanks to the aging population and the proliferation of other tax credits over the years, including the expansion of the child tax credit on the tax bill approved in 2019, approximately 45 percent of the population does not pay income taxes This means that the vast majority of people in the bottom half of the income distribution would not get any help from the McSally program.

Small businesses need a better solution

Beyond the design flaws, the underlying concept of McSally’s legislation is simply bizarre.

Travel-related companies face particular burdens due to the pandemic because many travel-related activities are considered risky. Trying to pay consumers to ignore those risks could give businesses a chance, but it could also undermine efforts to stop Covid-19. That could cost lives and extend the period during which there is a high fear of travel. If you want to help companies affected by the pandemic, a better solution is to help them directly, either with specific assistance to the affected sectors (as the airlines received under the CARES Act) or with a comprehensive program such as zero interest loans for small businesses. , allowing them to endure a period of reduced income without going into liquidation.

Alternatively, if you are simply looking to increase consumer spending, you want to follow the CARES model: Put money in people’s hands quickly (not when they file taxes next year), and try targeting the money at people who are likely to are needed (not high-income individuals with savings in the bank), while allowing households to decide for themselves what is a safe and prudent way to spend it.

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