Sen. Martha McSally (R-AZ) has a plan to bolster the American economy: Direct thousands of dollars in subsidies for families to go on vacation, but only if they’re reasonably affluent.
Meet the American Tax Rebate and Incentive Program Act, or the American TRIP Act, which McSally says “will help boost domestic travel and jumpstart the comeback 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” by encouraging Americans to “safely get out of their homes and discover or rediscover Arizona along with the rest of the amazing destinations our country has to offer after a difficult several months stuck inside.”
The plan does not include an extension of the emergency economic assistance that’s kept households afloat; that is still set to expire later in the summer.
The proposal is for a nonrefundable tax credit — $4,000 for adults, $500 for children — in 2020, 2021, and 2022 for expenses related to domestic travel that takes a person more than 50 miles from their house. It’s a strange form of stimulus. If viewed as financial assistance to households, it specifically targets money in a way that nearly half of US families won’t be eligible to receive, including almost all of the people who could objectively use the most help.
And if the idea is simply to help businesses that are hurting due to public health concerns, it might be better to bypass those concerns by just funneling them money, especially as the existing Paycheck Protection Program (PPP) is set to 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 while rolling it out — so it attracted a fair amount of attention in the media. Whether it’ll actually end up on the floor of the Senate for a vote is another story. Regardless, in a moment when real Americans are suffering job losses, businesses are struggling to survive, and a pandemic is raging, a leading senator is pitching a policy proposal that does nothing for workers or employers and puts everybody at risk by incentivizing potentially dangerous behavior.
How the TRIP Act would work
To quality for TRIP money, as it’s called, you would need to be taking a trip to somewhere within the United States that is at least 50 miles from your main residence. Lodging, travel, and entertainment costs would all qualify. What’s more, if you own a second home, “expenses related to live entertainment, food and beverage, and transportation qualify, but expenses related to the dwelling would not qualify.”
In other words, if you drive out to your vacation house, you can use the tax credit to cover the cost of your food but not to cover expenses associated with the house itself.
The implications of this are somewhat bizarre. The stated intention is to encourage vacation travel. But the way the bill is written, an affluent white-collar professional who’s working remotely during the pandemic and owns a vacation house could simply relocate for a while and get thousands of dollars in tax credits for meals they would have bought anyway. Conversely, a service-sector worker with limited vacation time would, in fact, have a strong incentive to take a brief but very pricey vacation.
But there are two catches.
One is that this is a tax credit, not the government sending 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 kids) in the bank to blow on a vacation, you’ll end up getting your money back when you file your taxes next year. But if you’re living paycheck to paycheck, McSally isn’t actually providing you with any additional money. So the people most likely to be incentivized to actually undertake travel they wouldn’t have otherwise are actually least likely to be able to use the program.
That’s further exacerbated by the reality that the tax credit is nonrefundable. A refundable tax credit lets people owe less than zero income tax (in effect offsetting their payroll-tax burden), while a nonrefundable one applies only to people who have a positive income-tax burden. Thanks to an aging population and a proliferation of other tax credits over the years — including the expansion of the child tax credit in the GOP tax bill passed in 2019 — about 45 percent of the population pays no income taxes, meaning the vast majority of people in the bottom half of the income distribution would get no help at all from McSally’s program.
Small business needs a better solution
Beyond the design flaws, the underlying concept of McSally’s legislation is simply strange.
Travel-related businesses are facing particular burdens due to the pandemic because a lot of travel-related activities are seen as risky. Trying to pay consumers to ignore those risks might give businesses a shot in the arm, but it also might undermine efforts to halt Covid-19. That could both cost lives and prolong the period during which there is an elevated fear of traveling. If you want to help businesses impacted by the pandemic, a better solution is to help them directly — either with targeted assistance to impacted sectors (as airlines received in the CARES Act) or with a broad program like zero-interest loans for small businesses, allowing them to ride out a period of reduced revenue without going into liquidation.
Alternatively, if you’re simply seeking to bolster consumer spending, you want to follow the CARES Act model: Put money into people’s hands quickly (not when they file taxes next year) and try to target the money at people who are likely to be in need (not high-income individuals with savings in the bank), while also letting households decide for themselves what’s a safe and prudent way to spend it.
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