Public Citizen Testimony on COVID-19 and Taxes

Submitted to U.S. House Ways & Means Committee's Select Revenues Measures Subcommittee

By Susan Harley

June 19, 2020

Re: Hearing on “Tax Relief to Support Workers and Families During the COVID-19 Recession”                                   

Dear Chairman Thompson, Ranking Member Smith and Honorable Subcommittee Members:

On behalf of Public Citizen’s more than 500,000 members and supporters nationwide, we thank you for holding this important hearing to address the need to further support workers and families struggling from the recession caused by the COVID-19 pandemic.

More than 2 million Americans have been infected by the coronavirus and more than 119,000 people have died in our country from it. In addition to the health threats posed by the disease, our economy is suffering levels of unemployment not seen since the Great Depression.[1] And, the nation is also undergoing a long overdue reckoning regarding systemic racism that has permeated the fabric of our society. In addition to the unconscionable police brutality and killing of innocent Black and brown people that has spurred protests around the country, the COVID-19 pandemic has had a disproportionate racial impact —both in health[2] and in economic terms.[3] And, historical economic inequality has been baked into our nation’s tax system.[4]

Now is the time for Congress to step up to the task of ensuring all families are being accounted for in additional relief packages as well as unrigging our nation’s tax code to address systemic inequality. While stimulus packages like the CARES Act provided necessary funding at a critical time, they unfortunately gave money to some of the least in-need taxpayers, including millionaire owners of pass-through businesses[5] and profitable corporations that will be able to use their teams of accountants to arbitrage[6] tax breaks to enrich themselves. The taxpayers provided these benefits to wealthy corporations without receiving meaningful protections, like requirements that companies keep workers on the job and abstain from stock buybacks, in exchange. This is especially galling to our members and supporters who know that LLC owners like Jared Kushner and Trump’s businesses stand to reap huge benefits while our members and other everyday Americans were merely provided a check that couldn’t possibly cover the cost of rent, keeping food on the table, and other necessitates.

While Public Citizen supports additional direct funding, increased state and local aid, expanded health care coverage, personal protective equipment for essential employees and other support for families and workers, some leaders are already beginning to balk at the cost of these stimulus packages. Instead, they are calling for austerity measures,[7] which will simply punish those that are already suffering greatly from this pandemic. Not only will more tax breaks for the wealthy and corporations further anger Americans who understand that the economic system is rigged against them, but it will stack on to our mounting debt and deficit, which unfortunately leads to conservatives’ calls for cuts to essential services.

While there are clearly tax credits that could be truly useful for individuals and perhaps even small businesses, Public Citizen is concerned that operating within the frame of “tax relief” rather than “tax responsibility redistribution” is wasting an opportunity to reevaluate our tax code to provide greater equity and ensure that those who can pay more in taxes do so. Instead of further reducing our revenue intake, redistributing the tax responsibility will also insulate against arguments in favor of austerity measures to counteract the cost of aid packages.

The HEROES Act repeal of the CARES Act’s “Millionaires Giveaway” and limiting other carryback provisions for Net Operating Losses was a good step in the right direction[8], and we applaud the House for passing that measure. However, corporations can and should shoulder more of the cost of relief programs, especially those multinational businesses that have long been shirking their tax responsibilities by using avoidance techniques and gaming the international tax system.

This week, the Independent Commission for the Reform of International Corporate Taxation released a paper called for nations to tackle tax avoidance and suggests tools like public country-by-country tax reporting as a way to hold corporate actors accountable for their tax avoidance schemes that are starving nations’ coffers.[9] Moreover, unpatriotic corporations that used “inversions” to reincorporate abroad to avoid U.S. tax bills should absolutely not be receiving further stimulus funds.[10] And, before further tax benefits are provided to corporations, it is clear that the government must be forced to disclose recipient information, including those companies that have availed themselves of the Paycheck Protection Program.[11]

As we look to use this moment to recalibrate our tax code with a focus on equity, it’s obvious that harmful pieces of the 2017 tax giveaway law could easily be rolled back. These include increasing the tax rates on the wealthiest individuals, ensuring corporations pay a minimum tax, ending the incentive to offshore investments by equalizing the domestic and international tax rates, and making other changes that would provide confidence to the American people that corporations and the rich are contributing their fair share. The Internal Revenue Service must also take on tax cheats by focusing on audits that would yield the most lucrative results versus overly concentrating on impoverished individuals who are merely trying to get by rather than game the system.

Now is also the time to look to proactive sources of funding such as a Millionaires Surtax of 10% on individuals making for than $1 million ($2 million for couples) or a Wall Street sales tax (or financial transaction tax, FTT) on stock, bond and derivative trades. America can look to Europe’s example as there is currently a push for the EU to implement an FTT[12] similar to ones that several member nations already have in place.

Public Citizen looks forward to working with this committee to implement these ideas and to identify other ways to ensure our country is focused on redistributing tax responsibility as the road to relief for American families and workers.

Thank you for the opportunity to submit this statement for the record. For questions, please email sharley@citizen.org.

Sincerely,

Susan E. Harley, JD

Deputy Director–Congress Watch division

 

[1] Greg Iacurci, The U.S. is Officially in a Recession. Will it Actually Become a Depression?, CNBC (June 9, 2020) https://cnb.cx/37HTAxY.

[2] Tiffany Ford, Sarah Reber and Rcichard V. Reeves, Brookings Institution, Race Gaps in COVID-19 Deaths are Even Bigger Than They Appear (June 16, 2020) https://brook.gs/37HUR8j.

[3] Stacey Vanek Smith and Greg Rosalsky, Black Americans Bear the Brunt of the COVID-19 Pandemic’s Economic Impact, NPR (June 3, 2020) https://n.pr/3darAnL.

[4] Palma Joy Strand and Nicholas A. Mirkay, Racialized Tax Inequality: Wealth, Racism, and the U.S. System of Taxation, Northwestern Journal of Law & Social Policy (Spring 2020) https://bit.ly/2Nfumxn.

[5] Press Release, Sen. Sheldon Whitehouse, Whitehouse, Doggett Release New Analysis Showing GOP Tax Provisions in CARES Act Overwhelmingly Benefit Million-Dollar-Plus Earners (April 14, 2020) https://bit.ly/2Ce4NKY.

[6] Leon LaBrecque, Hidden Stimulus in the CARES Act for Businesses: Net Operating Loss Carrybacks Can Bring Sweet Returns, Forbes (June 11, 2020) https://bit.ly/37IyO12.

[7] Paul Krugman, Peacocks and Vultures are Circling the Deficit, New York Times (April 27, 2020) https://nyti.ms/3dbaQN5.

[8] Institute on Taxation and Economic Policy, The HEROES Act Would Correct CARES Act Business Tax Mistakes (May 20, 2020) https://bit.ly/3dcc6zF.

[9] ICRICT, ICRICT Report: The Global Pandemic, Sustainable Economic Recovery, and International Taxation (June 15, 2020) https://bit.ly/2Ycr5oR.

[10] Laura Davison, Companies That Left U.S. for Tax Reasons Could Qualify for Fed’s Aid, Accounting Today (May 15, 2020) https://bit.ly/2UWiOnk.

[11] Lauren Hirsch, Treasury Secretary Steven Mnuchin Says He Will Talk to Lawmakers About Small Business Bailout Disclosure, CNBC (June 15, 2020) https://cnb.cx/2CkR70V.

[12] Reuters, Germany’s Scholz: EU Should Get Its Own Revenues, New York Times (June 17, 2020) https://nyti.ms/3efcgrs.