The Trump administration is reportedly considering a domestic travel “Explore America” tax credit that would refund 50% of up to $8000 per household in air, hotel, rental cars and even event tickets and restaurant spend as long as you’re at least 50 miles away from home.
I would love for other people to cover $4000 of my travel expenses. However I don’t think this is a good idea.
- Cost isn’t the barrier to travel. Subsidizing travel with tax credits makes travel cheaper, but price isn’t the binding constraint. When you start to see persistently lower fares that’s good for the airline industry because it means people can be brought back to travel, fear and risk aren’t overwhelming demand. Right now people are staying away because of the virus, not because of price.
- Proposal subsidizes demand next year after risk is no longer as big an issue. The ‘Explore America’ tax credit proposal would last through the end of 2021. We’re likely both to have effective treatments and even a vaccine by then. Hospitals won’t be overrun, patient outcomes will improve, and outbreaks should be limited and localized. If travel needs help recovering, shouldn’t we wait to see what demand looks like at that time and what’s holding it back, rather than passing a proposal now before we have a sense of the forces we’re even trying to combat (if any)?
- Should we be encouraging a return to normal behavior? Travel is lagging even though people aren’t generally required to stay home. People are making a judgment about risk that has helped to contain spread of the virus. People stopped going to restaurants before governments required them to. The NBA cancelled its season before gatherings were barred. And people continue to stay home because they aren’t confident it’s advisable to go out. That may be wise especially for older people as well as those with significant pre-existing conditions like diabetes.
With historic rates of unemployment, food spending closer to home may be a higher priority. Paying rent on your existing home may be a higher priority than paying rent on a hotel room. And if travel right now is the province largely of those who are better off, in an economy that features greater levels of inequality due to the recession and job losses, redistributing money to those who are better off seems ill-advised and ill-timed. To benefit from this credit you need the $8000 to spend in order to get $4000 back.