There are an awful lot of government programs to provide financial help to both individuals and businesses during the pandemic crash, and the nooks and crannies of the multiple relief bills passed by Congress contain even more. A bunch of these are “small business” programs, and as we’ve seen before, the feds define a whole lot of things as small businesses, including sports teams like the Los Angeles Lakers, whose owners applied for $4.6 million in refundable loans via the Payroll Protection Program before giving it back when they realized it looked bad. And now, hey look, the owners of the St. Louis Cardinals have found another program that they can get cash from!
It turns out that our beloved baseball team has also discovered a way to help itself to a share of the very same federal CARES COVID-19 relief dollars, but under a separate tax credit provision established for companies that don’t qualify for the PPP.
The tax credits portion of the CARES act has flown under the radar. Under it, a qualified company can receive taxpayer dollars indirectly through a reduction of its employer-match share of social security (FICA) payments. A company gets forgiven up to $5,000 per employee in taxes it would normally have owed, in exchange for maintaining a certain level of its workforce.
The Riverfront Times’ Ray Hartmann goes on to note that while the Cardinals wouldn’t divulge the total tax credit it was applying for, with 280 non-player employees listed on their website, they’d likely be looking at “substantially more than $1 million in CARES tax savings.” Further investigation reveals that while the Employee Retention Credit, as it’s known, is technically formulated as a “tax credit” on FICA payments (likely in order to make it non-taxable income), as a refundable tax credit it can be more than a company is actually paying in FICA — so in practice it’s just a $5,000 check for every employee earning at least $10,000 between March 12, 2020 and January 1, 2021, making “more than $1 million” a decent ballpark figure.
So, how evil is this, on scale of 1 to Sauron? From what I can tell, the ERC isn’t a set pool of money like the PPP; any employer is eligible, and it’s not first-come-first-served. So at least the Cardinals owners getting cash isn’t denying funds to some other more needy recipient. (Unless you count future Americans as a whole as needy, since we’ll be the ones ultimately paying off the trillions of dollars being borrowed to pay for all this.) And while Hartmann writes:
This is not just a case of a company taking all the normal tax breaks to which it is entitled. Everyone has a right to do that. No one needs to tip the government. This is about a professional sports franchise actively pursuing tax breaks expressly meant for folks who are suffering.
…that’s not exactly true, because this is actually a tax break expressly meant for businesses, the bigger the better. While you can make a case that this is encouraging companies to retain employees — hence the name of the provision — you could also argue that since employers are unlikely to keep on unneeded workers just to get a $5,000 tax break, it seems likely to result in a lot of businesses just getting subsidies to retain people they’d be keeping on anyway.
In fact, the bigger concern here is the construction of the Employee Retention Credit in the first place, which seems geared to benefit large corporations the most, given that it’s available to businesses of any size but not to self-employed individuals, even though the self-employed do pay the employer portion of business taxes. If a billionaire sports team owner takes advantage of a government program designed to take advantage of a global crisis to funnel money to billionaires, who is really to blame here? Crony capitalism? The Supreme Court’s Citizens United ruling? Society as a whole? This fighting evil business really would be a whole lot easier if you could just drop a magic ring into a lava vent to solve all your problems.
“since we’ll be the ones ultimately paying off the trillions of dollars being borrowed to pay for all this.” Ha! We are so NOT going to be paying this off. The U.S. government and economy are debt junkies that will keep borrowing until people stop lending them money, at which time the Fed will just print more to keep it all going. That’s what has been happening since the Panic of ’08, and there’s no sign of it stopping.
Then we’ll be paying increased interest on it. Or paying for it via inflation if the government really “prints more money” to avoid having to borrow (which isn’t ever how it works). But debt is just a financing tool — you have to pay for it one way or another.
There are some extremely good arguments for borrowing now and paying it off later, in fact — the cost of borrowing is through the floor, for one thing, and also paying down debt will be much easier once the economy isn’t lying motionless on the floor. But it’s still important to make sure those trillions of dollars are spent on something useful, because once the money is borrowed and spent, it’s gone.
Yeah as a self employed person it has been nice to see that as with all other forms of federal legislation, the COVID legislation seems to forget I exist when crafting any benefits and remember I exist when crafting any costs.
There have been some benefits that self-employed people are eligible for: They can get Payroll Protection Program grants (if they were able to apply before the bigger “small businesses” gobbled them all up), and they’re eligible for Pandemic Unemployment Insurance despite not usually being able to get regular UI (though I know at least one self-employed person who should have been eligible based on the rules who was nonetheless rejected). But yeah, as with most things, the people with the most lawyers are tending to get the biggest slices of the pie.
Of course, and the UI doesn’t really work when you aren’t “unemployed”. You income drops 60% but you are still working you aren’t “unemployed”. But you also don’t get the $600 a week + or whatever.
And it seems counterproductive/exploitative to stop work just so you can get marginally more money out of UI than you would working at 40%.
In most states, if your income drops 60% because you’re working fewer hours, you are eligible for UI — and in that case, you’re also eligible for the extra $600. And under Pandemic UI, that’s explicitly true for the self-employed and gig workers as well.
A few points about the ERC from a tax attorney who’s been writing about it:
1) There’s definitely no set pool, unlike the PPP, so a big corporation getting a benefit doesn’t hurt anyone else (other than taxpayers).
2) For corporations of greater than 100 employees, the credit only applies when you pay employees who are not providing services, so it only actually applies when a business keeps on currently “unneeded” employees. (This of course is a win for sports teams in this context, as they likely have many employees “not providing services” who they definitely would have kept anyway, but it’s not as cut and dry for most businesses.)