State and local gov'ts should forego tax revenue to boost businesses now
Elected officials — from Washington, D.C., to state capitals across the country — are asking businesses to pitch in and help with COVID-19 relief. Businesses are contributing in many ways, from retooling models in order to provide personal protective equipment, and donating PPE, to brainstorming ways to help fight the virus.
Despite the positive impacts, relief efforts bring added expenses. Stay-at-home orders and related business restrictions cause a depletion in revenues, and many businesses are faced with difficult choices. Instead of asking more from businesses, state and local governments should consider asking the “reverse Kennedy” question: What can taxing entities do for their business community?
Cash flow is critical. Business operations need cash influxes now more than ever. Keeping capital in their business is important to maintaining payroll and operational expenses. Business owners understand their business and are in a better position to decide where their dollars are best spent. During the pandemic, taxing entities are doing what is possible by providing businesses with access to grants or low interest loans.
However, given the option, most business owners would prefer to keep cash in their business rather than receiving a loan.
In order to support businesses, taxing entities at all levels of government should be considering options to waive taxes — upcoming property taxes, for instance — in order for businesses to retain cash resources. The business would then be able to apply the savings in preparation for restarting the economy and conserving their financial wellbeing.
For example, a business that’s retaining a $10,000 spring property tax payment would now have that cash on hand for payroll expenses, utility payments or other immediate needs. Letting a business keep its property tax money in May would have a much greater impact than a traditional tax credit.
Tax credits are traditionally a favorable option for businesses and an ideal way to base performance on required goals (new job creation, etc.). However, in the current environment, businesses cannot rely on these tax credits now, as they cannot realize those benefits for approximately 12 to 14 months. Additionally, most businesses will likely show a loss for 2020 and therefore tax credits may not have an effect over the coming years.
Other businesses, without immediate relief, will not be around in the future at all.
Obviously this solution has potential consequences for taxing entities as well — how will state and local governments operate if they are not receiving taxes to fund their budgets? While tax credits and abatements provide significant benefits, the current environment calls for more creative incentives, such as a tax payment deferment until the following year.
In order to fast-track economic recovery, state and local governments should be focused on minimizing operating costs, maximizing outside aid and passing these savings on to businesses as directly as possible. Taking this approach now could significantly enhance municipal budgets in the coming years.
A mutually beneficial solution will allow both businesses and taxing entities to weather this time together. Taxing entities are in a better position to petition state and federal entities for funding or could draw on bonds to help with any longer-term issues. This positions those governments to more easily bear the brunt of this pandemic — not the businesses who are the engines driving the economy.
Business assistance and incentives must be broad-reaching, which will allow companies to quickly restart once this pandemic comes to an end. Keeping cash in the business is the fuel that will drive the economic engine and allow us all to get back to a thriving economy.