A Billion Here, A Billion There, Soon You’re Talking about Real Money. Part 4.
The first three parts of this series dealt with the strange relationship between COVID19 and such issues as distance to the nearest neighbor, straight-line winds, contracts by cities to run transportation systems and other topics whose relationship to COVID19 is not clear. They also addressed the dizzying array of Federal programs dealing with common issues, which are sliced and diced into separate issues based on vague criteria appearing to establish distinctions without differences. This part of the series will deal primarily with the interaction between COVID19 and Federal taxes.
Subchapter IV of Chapter 1 of Subtitle A of Title II begins the slow slide into the realm of taxation. It illuminates the origin of what most of us thought was a stimulus payment of $600 per person. It turns out not to be a stimulus payment but an advance payment of a refundable tax credit, and will not be taxed. Recipients are required to provide documentation of employment or self-employment, but does not explicitly require the individual to prove that the documentation pertains them him or her. I think I’ll submit documentation for LeBron James, which should entitle me to a lot of unemployment money. States are required to verify identity of recipients of one type of payment, which, according to our national leadership, is de facto racism.
There are requirements for employers to report to the state when a worker returns to employment, or when the employer has offered employment but the worker has refused the offer. What happens with that information is not merely non-specific, it is undiscoverable. The second stimulus payment of $600 is again described as a refundable tax credit advance, and is not taxable, nor subject to garnishment. I think.
The employee’s deferred contribution to payroll taxes (Social Security tax withholding) must be withheld by employers beginning January 1, 2021, and ending on April 31, 2021 – stet, you can’t make this shit up – except that the repayment period is extended through December 31 2021. There is no provision for a claw-back from people who did not return to work. Educators are allowed to deduct the cost of any PPE purchased since March 12, 2020, from their income for tax purposes; no other professions are mentioned. Paycheck Protection Program loans that are forgiven do not appear to be taxable, nor do future PPP forgiven loans appear to be taxable. Use of those PPP funds to make payments that otherwise would be legitimate business deductions is not allowed; as money is fungible and no single dollar can be audited from receipt through expenditure, I have no idea how this will be accomplished. Students need not include grants or emergency assistance in taxable income, but companies receiving forgivable PPP loans who use the money to make student payments to employees whose education the employer is supporting are to do something. That is not a typographical error. The language is simply too dense for me to understand.
Employees are authorized to take loans from their pension funds, IRAs, 401(K) plans as before but are allowed to repay them over a three-year period and pay taxes on the early withdrawal amounts under some undecipherable conditions and for unintelligible reasons. I’ve been filing my own taxes, including business taxes, for fifty years, but were I subject to the provisions of this COVID Relief Act, I’d have to hire a CPA. Farmers are likewise free to treat carryback losses essentially however they wish. There are two-year and five-year carryback terms, and farmers are allowed to treat carryback amounts using either or neither period, and to revoke prior selections and exemptions, in a manner simply too complex for me to comprehend.
Small firms who used PPP money to pay vendors or other normally tax-deductible expenditures are permitted both to have the loan forgiven and to claim the expenditures as deductible expenses. This appears to me to be a blatant violation of fundamental principles of taxation and deductible expenses. This goes beyond having the cake and eating it, too. It adds sending slices of cake home with all the guests.
The PPP appears to be an opportunity for mischief. Once the bill is enacted PPP loan applications must include demographic information about the borrower. This typically is used as a basis for determining whether there has been any bias in award of a benefit based on unequal treatment of a specially-designated group. It may be perfectly innocent; in a woke world, I will believe it when it comes to pass.
Multiple sections provide for a simple classification of student loans and grants. They are irrelevant to U.S. income tax. Nothing that Congress couldn’t turn into three hundred words scattered among three or four paragraphs.
Finally, we get to see where the money is going. An authorization of $806.5B is created, but not all of it is appropriated. Only set-asides are appropriated. For example, $15B is set aside for minority depository institutions and community development financial institutions, which are defined differently but in practice are similar in that more than 90% of their loans are granted to minority-owned businesses. Another $35B is set aside for first-time borrowers, especially those in low-income and disadvantaged areas, plus $25B for second-time borrowers in financially hard-hit areas. The $60B is expected to be set aside for small businesses with ten or fewer employee. All of which can be reallocated as the Director of the Small Business Agency wishes after twenty-five days. The entire detailing of where the $60B goes, subdividing it into segments as small as $250,000, is moot after less than a month.
The bill then goes into a dizzying array of various types of loans and grants, all styled as for small business – which can be for $5M to someone with a net worth of $4.9M to purchase real property and improve it. The government’s definition of small differs significantly from that of most voters. The loan types include:
· Minority Business Development Centers program under the Minority Business Development Agency (MBDA)
· Targeted EIDL Advance program (Emergency Injury Disaster Loan, covers a multitude of possibilities). These loans and advances are sub-divided into multiple types and sub-types, with an astounding variety of terms, requirements and payback options.
· Microloan Program. In most parts of the world, these are capped at less than $200 and intended to help an entrepreneur open a new business, usually in a rural area. To the SBA, they are up to $50K, and SBA regulations make it clear that rural enterprises are an afterthought.
· 7(a) loans, up to $5M. These are the most common type of SBA loans.
I can only conclude that the bill itself was written with attorneys and bureaucrats in mind, not small businesses. This is a predictable result of surrounding oneself with people who agree with everything you say. Eventually, the environment becomes an echo chamber, and loses contact with reality. I don’t mind when people live in echo chambers and lose contact with reality; I do mind when they feel entitled to spend trillions of taxpayers’ dollars at a time.
This is the first time I've read anything that makes sense and shows me that --as I suspected--the whole thing is arcane, geared to pre-determined recipients who must have had their attorneys write it up. Tomorrow the emergency broad band benefit begins so people can look this all up and still not understand it. https://www.fcc.gov/broadbandbenefit