Covid Business Tax Cuts

As a card-carrying macroeconomist, I can proudly admit that I am not an accountant and I am definitely not a tax accountant.  Just as I am not an epidemiologist, I am among the rest of you who must try to understand everything that is going on because of Covid.

I just read an article in the Wall Street Journal about corporate tax changes under Covid. As I read it I had several reactions.

The first reaction is that one must be a tax accountant to understand and comply with these new laws. You say pasha Larry – companies are supposed to hire people to do their accounting. What’s the big deal? Well the big deal is that companies might know how to read these new laws but even companies won’t fully understand them. Nolan wanted me to play Pokemon with him. I could play checkers or War with him but Pokemon? I have no idea how to do that. He thinks grandpa is pretty dumb. I think our tax accountants will feel the same way.

Okay so companies don’t know exactly what to do. But worse yet, if you have gotten a new driver’s license lately and interacted with government, are you sure that there are enough  government workers trained in tax accounting who will be able to audit what companies turn into them? Imagine the load of tax returns coming in with huge tax advantages that must be audited. Is government really up to that task? Will Arthur Anderson have enough surplus employees they can loan to the government? At what price? What will guarantee that the work is done with quality?

Sound doable? Maybe. But let’s think about incentives. What are the incentives for most companies under the new laws? What do companies ALWAYS do when it comes to their taxes? What they ALWAYS do is lie and exaggerate the truth for one purpose – to reduce their taxes and increase their after-tax profits. This is a law of behavior more famous than Pavlov’s dogs who salivate every time they hear the name Trump.

What is cute about the current situation is how many new lies they can tell. Think about it. Let’s suppose a tax break is related to how many workers they pay for not working. Imagine how many workers they might be able to claim which might include the neighborhood dog walker. Who is going to audit all that?

As I said I am not a tax accountant but just try to imagine how creative those very creative tax accountants will be when faced with thousands of new pages of instructions for tax compliance. Wow. That blows my mind. And what really blows my mind is to think of  government hiring zillions of new employees whose job will be to comb through all those creative stories. How many threatening letters will they write to companies? How much time and spleen will be devoted to that whole load of correspondence and the process of divining who is right?

But that is the tip of iceberg. Another truth we all know is that there always has been a war between the owners of the companies and their employees. That war will never end. A dollar comes into Joe’s Banana Foster Truck on Aurora. After sending a buck to various governments, what is left in the till is split between Joe and his employees. 

This split is the source of much discussion in America. Unions were created to protect Joe’s workers. Various laws protect Joe’s workers. But Joe still has some leeway in deciding the split. That decision is always important. Joe has nine kids and a well-dressed wife, so Joe is under pressure to get a decent share.

Under these new laws, Joe and his tax accountants might see a silver lining – maybe he can figure out a way to look like he is following the new myriad laws and end up with a bigger share of what’s left after taxes. The workers are not tax accountants and they surely do not understand the new laws. Joe has a big opportunity to go bowling more often and buy his honey a new silver heart-shaped necklace.

Clearly, once all these laws get put into place, labor will figure out that Joe is trying to screw them. A labor/owner war will ensue. Given all the unpleasantness and stress caused by Covid, this war will get ugly.

One final point before you enter that well-earned nap. All those laws and parts of laws! All those extra government employees needed to audit all those tax returns. Do you really believe that they will disappear like Zorro in the night when the economy starts improving? Government has exhibited an historical tendency to grow without shrinkage. Will we ever get back to anything approximating a normal government?