The response to the CCP virus is well beyond unprecedented.
While the goal to limit the virus is vital, sadly, it comes at an economic price. That price is also unprecedented and to combat that and the uncertainty of the times, U.S. employers and businesses need a tax holiday.
As we look around the world, few can doubt that the virus presents an enormous health challenge. To combat that challenge, businesses around the globe have had to shut down, without knowing when they will open again.
In the United States, we have never taken an action with such broad economic implications. Just walking the streets in the San Francisco Bay Area, where early actions were taken, and seeing virtually every business closed, tells quite a story.
Along with the market plunging, the economic fallout will be significant. In modern times, we have never had a contraction like we are about to experience. Previously, after 9/11, we saw a sharp drop in the economy and more than 1 million jobs lost in the first 90 days thereafter. It took years for the stock market and the economy to bounce back, and only after significant tax-rate reductions.
The current economic shutdown, which has been imposed by government, however well-intentioned, will result in far more jobs lost than that. Indeed, a consensus is building that the economy could contract by double digits in the second quarter of this year.
Some are optimistic that the economy will bounce right back. However, given the slim margins on which many businesses operate, especially restaurants, we can expect that many businesses won’t come back at all.
Overall, this will be no ordinary recession.
The U.S. economy was doing quite well just a month ago. Now, it isn’t. Few saw this coming. Given that we have had five major health scare/pathogens in the last 17 years (SARS, MERS, Ebola, H1N1/swine flu, and now the CCP virus), investors logically will ask if shutting down the world economy will become a normal response to future circumstances.
In other words, unprecedented times are leading to unprecedented uncertainty for those who want to start businesses and put their savings at risk.
So far, much of the political response to this crisis has been on the side of getting cash into the hands of consumers. While that has its merits and risks (such as larger deficits), government cash transfers don’t lead to long-term sustained economic growth.
Boosting the amount of money available for small business administration (SBA) loans sounds good on the surface, but likely will have a minimal effect. As a small business attorney, I can tell you that borrowers will still have to qualify for the loan—an arduous process under any circumstances. This crisis, however, has diminished many a small business person’s assets. So, unless the qualification standards are loosened, also a risk, the SBA avenue may not produce the desired effect.
In order to combat the impending investment uncertainty, policymakers must take action that will bolster the confidence of entrepreneurs and investors. While we all should know by now that government can’t guarantee consumer demand, nor that all businesses or their ideas will necessarily succeed, government can take steps to convince entrepreneurs and investors that their future costs will be lower.
It’s said that up to 20 percent of all the arable land was abandoned. In response, the Roman emperor, Pertinax, offered title to abandoned land and a 10-year tax holiday to anyone who wanted to take the risk.
In our time, the state of New York offers a 10-year tax holiday for new business startups, which it advertises as follows:
“START-UP NY Tax-Free Information
“Pay zero taxes for 10 years? Yes, really.
“Imagine what your company could do with the money saved by operating tax-free.”
Recently, New York Gov. Andrew Cuomo said of President Donald Trump, with respect to the COVID-19 crisis, that he is “fully engaged,” and “very creative and energetic.” In other words, imaginative.
None of us should underestimate the uncertain investment and business times that lie ahead. The rapidity at which our economy went from strong growth to closed down would give anyone pause. The longer this shutdown goes on, the greater the uncertainty will be.
In order to combat that uncertainty, U.S. businesses and entrepreneurs need a tax holiday of some length and a tax-rate reduction for at least a very lengthy period of time, if not permanent. The sooner that is done, the sooner our economy will rebound and be able to sustain itself.
The long-term health of our economy—which will produce the wealth we need to provide health care to all Americans—deserves no less.
