WASHINGTON — Senior White House economic official Larry Kudlow told reporters last week that the administration wants to approve new tax breaks for baseball games to encourage Americans to return to the ballpark.
The next day, Minor League Baseball announced it would play no additional games this year because of the coronavirus pandemic. The future of Major League Baseball looks up in the air, too, with several league stars opting out of the season recently over fears of spreading the virus and the Washington Nationals and the Houston Astros canceling workouts on Monday due to problems with testing. Fans won't even be allowed to attend the truncated baseball season when it starts later this month, at least initially.
"It's a little weird to see the administration discuss something like a tax credit, when essentially no team has announced a policy on even bringing fans back to the ballpark this year," said one official involved in baseball operations at a Major League Baseball franchise, who spoke on the condition of anonymity to discuss industry reaction.
President Donald Trump and White House economists have pushed a range of tax breaks intended to prod Americans to return to normal economic life and revive battered industries. Trump has endorsed an "Explore America" tax credit that would give Americans a federal reimbursement for taking vacations in the United States. The president has told restaurateurs that he wants a tax break that would allow companies to claim a tax deduction off employee meal expenses. He has pushed similar tax deductions for the entertainment industry.
But there are growing signs that the tax breaks the White House wants to use could fall flat, because many of the venues it is eyeing — such as sporting events and certain restaurants — are either closed or operating in a much different manner than they were before the outbreak.
The push reflects White House officials' long-standing faith in the power of tax cuts to spur economic growth, as well as their broader demands for a suite of tax cuts in the next stimulus package. Many economists — including some analysts in the industries those credits are intended to help — say these efforts are unlikely to prove successful as long as the pandemic continues to rage across the country. Huge swaths of the United States are still struggling to contain the virus. Miami-Dade County in Florida, for instance, announced the closures of casinos, movie theaters, restaurants and gyms amid a surge in new cases.
"Reducing the after-tax cost of taking a vacation is not going to address people's fears of getting the virus while on vacation," said Kyle Pomerleau, tax policy expert at the conservative-leaning American Enterprise Institute. "That is the fundamental issue facing these industries, and what the White House needs to understand."
The president and the White House have for months talked about providing industry-specific tax breaks or incentives, demanding their inclusion in the next congressional stimulus package. The White House has said it is focused both on spurring economic growth and quashing the virus. The president celebrated a drop in unemployment numbers to 11% and said the White House will be "putting out the flames" in areas where the coronavirus is spiking.
"In preparation for a phase four package, the White House continues to review pro-growth economic measures that provide tax and regulatory relief and incentivize employers to bring back their hardworking employees safely to good-paying jobs," White House spokesman Judd Deere said in an email.
Expanded tax deductions have figured prominently in their set of demands for the next package. At the White House in April, Trump urged that the United States "go back to the original" version of a tax deduction for entertainment and meals. Before the 1990s, companies could deduct 80% of their employee costs on entertainment and recreation, including meals, provided they were related to "business activities."
That number was decreased to a 50% deduction in a bill passed by President Bill Clinton in 1993. The 2017 Republican tax law further shrunk the loophole to offset the price tag of that legislation's enormous reduction in corporate taxes. The Republican law zeroed out the deduction on entertainment and recreation, although it left intact the 50% deduction on the cost of business meals.
A White House spokesman did not clarify the exact nature of the administration's plan. "Restaurants and entertainment — and that would include sports leagues, all forms of entertainment — go back to the original, where they get tax deductibility for what they're doing and for people who come in and buy tickets or go out for meals. And corporations can then send people into these restaurants who are going to have a hard time otherwise opening," the president said in April. "And that could be the same for the sports leagues."
The president added: "They'll send their executives, they'll send people there, and they get a deduction. That is something that will really bring life back to the restaurants; I think make them hotter than before. You know, they used to have it. And when they ended it, it was really never the same. It was never the same."
The president returned to the deduction unprompted during a May roundtable with restaurant executives who had been pushing the administration for additional forgiveness on their small-business loans. "I think it's, frankly, more important than even the other things we're talking about," the president said of restoring the deduction. "I guess, short term, what you're talking about, is more important, but long-term, the deduction would be phenomenal."
In May, Kudlow endorsed a proposal by Sen. Martha McSally, R-Ariz., to provide tax credits of up to $4,000 that would reimburse families' hotel and entertainment expenses while on vacation in the United States. The plan only applies to trips taken more than 50 miles from home. The plan would offer up to $8,000 in taxpayer dollars for a couple's vacation.
"We're looking at deductions for business expenses, restaurants, baseball games, if hopefully they're going to open," Kudlow added last week. "Sightseeing, tourism — we're looking at tax deductions there, too, to help the economy get going."
The White House would not say how much its proposed tax deductions would cost, but they are unlikely to compensate for the enormous blows sustained by the industries hardest hit by the coronavirus.
Experts say restoring the deduction to 2017 levels would cost approximately $2 billion a year. Restaurants alone have lost $240 billion in sales in 2020 because of the coronavirus, according to the National Restaurant Association, an industry group. Revenue lost in the sports industry tops $12 billion. The entertainment industry faces losses of as much as $20 billion.
Congressional Republicans are open to the idea but do not view it as a top priority, according to two congressional GOP aides and a tax lobbyist, who spoke on the condition of anonymity to discuss internal dynamics.
Even some of the White House's allies are skeptical about pushing these tax cuts as the virus continues to spread. The Heritage Foundation, a conservative think tank, sent the White House a report that found that "changes in tax policy will not have a particularly significant effect" on spurring economic growth out of the pandemic. Stephen Moore, a longtime ally of Kudlow's, said that the tax breaks for specific industry groups were a mistake that would create the perception of public subsidies for billionaires such as sports franchise owners, and amounted to the government "picking winners and losers" in the economy.
“There are people in the administration who want to do something for the economy but are struggling to come up with something that isn’t in their usual playbook — which is tax cuts,” said one former senior White House economic official, who spoke on the condition of anonymity to discuss private conversations with members of the administration. “It’s almost like they are on the battlefield getting shot at and they’re worrying instead about how to feed themselves in a few weeks.”
Lobbyists for key industry groups have told White House officials that the tax deductions will be irrelevant if the nation does not do more to bring the virus under control, according to two people aware of internal conversations who spoke on the condition of anonymity to share details from private conversations.
Industry groups "are not going to say, 'Don't give us a tax break,' but they're also being clear that a tax incentive for industry is not going to resolve their issues," one person in communication with the White House said. "The idea that a small tax incentive is going to supersede the threat to people's lives and livelihoods is a crazy and strange way to think about it."
The struggles of U.S. sports leagues highlight the potential shortcomings of the White House's tax incentives strategy.
Experts point out that countries that have done a better job containing the virus have also had an easier time restarting their sports leagues.
South Korea, for instance, started experiencing coronavirus cases around the same time as the United States but was able to flatten the curve and has held baseball games for months. After driving the number of cases close to zero, New Zealand has brought rugby matches back in fully packed stadiums. (TV and film production is also restarting in New Zealand.)
The English Premier League restarted several weeks ago. Spain's and Italy's biggest soccer leagues have also returned, even though those countries faced some of the worst outbreaks months ago, said Zachary Binney, an epidemiologist at Oxford College of Emory University who focuses on sports.
In the United States, many of the major sports leagues, including hockey and baseball, have been suspended. (MLB is also plagued by a contract dispute in addition to concerns about the virus.) The National Hockey League was initially considering returning to two "hub" cities, one in Canada and one in the United States, probably Las Vegas. But as the outbreak worsened in Nevada, the NHL changed course and decided to host games exclusively in Canada, according to the Sports Network and the New York Post.
“The reason we don’t have sports back in the U.S. right now is that the virus is out of control in the U.S. Tax incentives don’t fix that. We should not have large gatherings of people for optional events when the virus is out of control, and we definitely shouldn’t be incentivizing that behavior,” Binney said.