Reader Carol wrote in to ask about a story in the U.K. DAILY MAIL that criticized a tax provision in the “CARES” Act as a giveaway to the rich. Specifically, it said that 80 percent of the benefit would go directly to millionaires and billionaires, including Jared Kushner and others in the “Trump circle.”
Not surprisingly, a review of the DAILY MAIL report showed it had no balance, no commentary from anyone on the other side of this issue. And predictably, the story was picked up by other left-leaning sites that presented the same simplistic take-away; namely, that the Republicans had added this provision to further enrich their “rich friends.” It took some looking, but we found an analysis in a more conservative news outlet, THE FEDERALIST, from Kyle Sammin, that took exception to this conclusion.
The headline and subhead sum it up: “No, Boosting Small Business Isn’t Rich People ‘Looting’ Taxpayers: Far from a handout to rich guys, a small change under the coronavirus stimulus package reduces taxes on business owners so they can retain employees on payroll.” It cites Jeff Stein at the WASHINGTON POST for using the tired media narrative that Republicans care only about rich people while failing to explore the reasons Democrats went along with this (they voted for it, you know). “As usual,” Sammin writes, “there is more to the story than the class warfare angle.”
The way Sammin explains it, this is “far from a naked handout to rich guys.” The tax incentive was added because of a change that had been made in the tax law in 2017 regarding the way small business tax losses are treated. The reason taxes on business owners (those “millionaires and billionaires”) have been reduced is to make it easier to retain workers on payroll while they’re shut down. It does not apply to personal income taxes.
It also doesn’t apply to huge, publicly-traded corporations, he says, but to smaller businesses that are organized for tax purposes as “tax-throughs.” We’re talking about proprietorships, partnerships, LLCs, and subchapter S corporations, whose profits are taxed at the individual level, not the corporate level. According to Sammin, about 95 percent of all businesses in America are organized this way.
This is your locally-owned neighborhood hair salon, family-owned restaurant or clothing boutique that has been hard-hit by the quarantine. In parts of the country with a mid-to-higher cost of living, especially, these business owners are going to be in the “millionaire” category, and these are the people –- along with their employees –- who are holding on for dear life.
The tax change in 2017 meant that, starting in 2018, small businesses couldn’t write off more of a loss than $250,000, or $500,000 if it was owned by a married couple. At that time, people who lost that kind of money tended to be disproportionately wealthy. But now, many more small businesses will show a loss like this, which means they have to cut pay or lay off employees altogether. This provision in the CARES Act was intended to lighten the load on these small businesses. “Like most tax incentives,” Sammins writes, it is not perfect, but it should be marginally effective in helping all workers, not just the rich.”
Yes, some of these small businesses are owned by quite wealthy people. Democrat Sen. Sheldon Whitehouse of Rhode Island, who did vote for the bill, complained, “It’s a scandal for Republicans to loot American taxpayers in the midst of an economic and human tragedy.” He’s hoping you don’t think too deeply about this and realize that it’s not “looting” to let small businesses write off their actual losses, especially at a time when they are faced with the very real possibility of losing it all.
As long as we’re looking at the CARES Act, here’s a less shall-we-say “charitable” look at the possible unintended consequences. It explains how the program is vulnerable to waste, fraud and abuse. (To that I would say, well, yes...isn’t every government program?) As Gary Meltz writes in the WASHINGTON EXAMINER, “These are honest and legal ways the PPP allows business owners who are not struggling due to the pandemic to make massive profits. Now think about the unethical and illegal methods that probably also exist.” To give the complete picture, I’ve included that take here:
The law has loopholes that allow larger businesses such as large restaurant chains to take advantage. For example, as Dominick Mastrangelo reports in the WASHINGTON EXAMINER, an exemption in the CARES Act allows food industry businesses to obtain loans as long as no more than 500 employees work at a single location. (I could argue, though, that it might be just as challenging, perhaps in different ways. to keep a big chain of restaurants afloat as it is to sustain a single restaurant or small regional chain.) Also, the law does not specifically prohibit aid from going to publicly listed firms.
Keep in mind that while we’re talking about this, Chuck Schumer and Nancy Pelosi are holding off their approval of a bill to replenish by $250 billion the Paycheck Protection Program (PPP) for small business loans, which in just two weeks was drained of its original $350 billion. This lack of money could affect hundreds of thousands of businesses. Again, this bill is another effort to help businesses keep people employed while they are unable to make payroll. Democrats are trying to inflate the bill to $500 billion –- for hospitals, food assistance and first responders –- and are delaying its passage.
They should go forward with this NOW and take up other funding in a separate bill. Stop bickering and playing politics; Congress has the “power of the purse” and could introduce additional legislation and debate the details of that funding separately rather than hold this bill hostage.
I would add that OF COURSE any funding bill designed to help desperate small businesses could end up benefiting some people who are wealthy –- including some who are disliked for partisan reasons. Just speaking broadly, if a bill that’s going to provide critical relief to small businesses happens to have some benefit for, say, Jared Kushner, does that mean we’re going to go on the assumption that it was DESIGNED to help build Jared Kushner’s portfolio and summarily reject it, leaving small businesses to twist in the wind? Or, are we perhaps going to do some sort of carve-out so that the program benefits everyone EXCEPT Jared Kushner (and anyone else who might be in Trump’s “circle,” or even every rich Republican)? Leftists would love to do that, but there’s a word for it: unconstitutional.
By the way, Pelosi, in a Sunday interview with Chris Wallace in which she repeatedly noted how “nonpartisan” her colleagues are being on the issue of help for small business (!), still managed to finger-point at Trump and would give no Democrats any responsibility for the delay in funding. “He’s a poor leader,” she said of the President. “He’s always trying to avoid responsibility and assign blame.” Um, Nancy, isn’t that exactly what YOU are doing in this very interview?