Congress created the ERC in 2020 to reward businesses and nonprofits for keeping employees on payrolls during the pandemic. Three years later, it has turned into a headache for the Internal Revenue Service and a bonanza for firms such as Bottom Line that help clients calculate and claim the tax credit. Bottom Line is one of the largest of dozens of ERC companies clamoring to capitalize on the opportunity.
The ERC is proving far more costly to U.S. taxpayers than expected. The IRS paid more than $150 billion in ERC refunds through early March, and the money is still flowing. Total payments through July could be $220 billion, with another $120 billion in the pipeline, according to a recent Piper Sandler estimate. That would be roughly triple early congressional estimates.
This is from Ruth Simon and Richard Rubin, “Inside a Sales Army Turning a Tax Break Into a Modern-Day Gold Rush,” Wall Street Journal, September 4, 2023.
I get calls once or twice a week telling me that I might qualify for this tax credit. I’m pretty sure I don’t because I don’t have employees.
I thought it was a scam until I read this article. I still think it’s a scam, but I’ve changed the identity of who I think are the scammers. It’s not these people, who are trying to make money telling people about an absurd and expensive government program. The real scammers are the Congress people who voted for it.
One of the people trying to cash in is Kevin O’Leary, aka Mr. Wonderful on Shark Tank. I had always liked him, thinking of him as someone who opposes big government on principle.
But no more. It’s one thing to take advantage of a government program. I don’t admire O’Leary for it, but I don’t fault him either.
It’s quite another to advocate extending the government program beyond its current expiration date. And that’s what O’Leary is doing.
“Shark Tank” veteran Kevin O’Leary is Bottom Line’s best-known partner. He promotes the ERC on television, on social media and to Congress, where he has pressed lawmakers to extend the deadline for claiming the ERC for an additional 24 months.
By pushing for extending this handout, O’Leary cannot plausibly be a strong opponent of high government spending.
READER COMMENTS
William J Potter
Sep 20 2023 at 8:53am
Kevin O’Leary also has another scam going on. Apparently he has a Cameo page. You can pay him $1200 per Cameo video and he will endorse whatever product or service you want to sell including him pretending have an extensive personal relationship with the con artist. Several get rick quick con artists have purchased his Cameo videos and used them in their online ads as appeals to authority to dupe people into buying their get rich quick training courses
Vivian Darkbloom
Sep 20 2023 at 9:38am
This is a good example, David, of a species of the genus “tax expenditure”.
Did you know that tax credits are not treated as “government spending” for normal budget purposes and only that portion of a “refundable tax credit” that is actually refunded in excess of tax liability is? A lot of spending occurs through the tax code not only because it is easier to hide but for the reason that it is often easier to administer.
This is not intended to be a “gotcha” question; but, do you think that a tax credit is actually the functional equivalent of “spending” and is only that portion of a refundable credit that the government actually writes a check for “spending”? Would it be helpful if we have some accounting mechanism to account for this? It’s not clear to me whether the quote “The IRS paid $150 million in ERC refunds” refers to only the refundable part of those credits or the full amount of refundable *and* non-refundable credits. For those wishing to know the full imact of this provision (which I agree is very bad policy), “tax expenditure accounting” would be a very useful addition.
David Henderson
Sep 20 2023 at 11:13am
Good points.,
I won’t say much more until I read the Surrey book, which is on order from Interlibrary Loan.
steve
Sep 20 2023 at 11:33am
My corporation had large cuts in hours. We handled it by letting people furlough if they wanted, a few older people, and then cut hours for everyone else. The other govt programs actually worked out to making us pretty close to even. If we had applied for ERC we would have come out ahead and that didnt seem like it was the right thing to do so we didnt. I would bet that a lot of companies were in the same position, ie applying to ERC is not needed to be made whole but is just adding to income.
Steve
David Henderson
Sep 20 2023 at 11:59am
Good for you, steve.
Thomas Strenge
Sep 24 2023 at 5:33am
The government is going to spend the money either way. If you’re eligible, take it. Then use the profits to donate to libertarian think tanks, school choice, and books by Hayek, Sowell, or Henderson. Don’t leave it on the table. It’ll just be burned.
Thomas L Hutcheson
Sep 20 2023 at 12:10pm
This is an excellent example of how bad policy leads to worse policy. Since we do not have an unemployment insurance system that compensates people for their loss of income (and health insurance, a separate aggravating factor) from job loss, Congress created ERC and the PPP. I think a Public Choice theory analysis would have indicated that it would have been wiser just to create a better UI system and not leave banana peels on the sidewalk.
David Henderson
Sep 20 2023 at 12:19pm
I’m not defending our current UI system, but it should be noted that it does compensate unemployed people for loss of income.
Thomas L Hutcheson
Sep 21 2023 at 8:28am
But pretty stingily, especially not taking account of our odd system of having employers purchase health insurance for their employees, and not in proportion to the loss of income.
Comments are closed.