In part three of our three-part series: Paying for the Pandemic, Kimberly Clausing, professor of economics at Reed College, and Robert Goulder, Tax Notes International contributing editor, discuss the role of business taxation in economic recovery.
Here are a few highlights...
On government pandemic loans and grants for businesses
Kimberly Clausing: We need to distinguish between what's temporary and what's permanent. If a business was having losses in earlier years, or if a business had a business model that no longer worked in today's economy, then we wouldn't want to be necessarily propping up such businesses. One distinction I make is between airlines and cruises . . . cruises have long had health issues that are broader than just this one. . . . Some of these judgments can be difficult to make, but I think that the goal is to help companies that you think under the normal course of business would be sustainable, but not to prop up ones whose fundamental business model has been shown to be problematic.
We have companies like cruise ships that are conveniently headquartered in tax havens where they're receiving all the full benefits of the countries in which they operate, but they're not paying tax to any government, except for maybe minimal fees. It's hard for me to argue that hardworking taxpayers should be subsidizing the survival of such companies.In my view, it's sort of a pay-to-play system. If you want to be a responsible corporate citizen and pay your taxes and do the normal things that we expect people to do, then you expect society as a whole to support you in your time of need. But if you've gone out of your way to invert the company and put it into a tax haven so that you wouldn't ever have to owe the U.S. government anything, then I'm not sure the U.S.taxpayers should be really worried about your future.
On the reach of the CARES Act
Kimberly Clausing: If you look at the legislation in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, there were some elements that I think were well targeted and some that were poorly targeted. There were a lot of companies that got really generous loan forgiveness, even though their operations might have looked pretty indistinguishable from what they were before. I have an example of a friend who has a law firm and it's really had the same amount of business that it had all along, but it qualified for these loans that then let it actually be forgiven if it kept its payroll up.So, what you're really doing is you are now subsidizing a successful firm that hasn't seen a reduction in its business.