On Monday, Senator Martha McSally proposed a bill called the American TRIP Act that would stimulate the travel sector of the U.S. economy by rewarding people for traveling domestically.
The American Tax Rebate and Incentive Program (TRIP) Act offers a tax break for American taxpayers who take a vacation during 2020 or 2021. The bill proposes to offer a tax credit of 100% of eligible travel expenses up to $4,000 per adult and up to $500 per qualifying child.
On the surface, that sounds amazing, right? But as I dug into the details of the law, I realized that the tax bill — if it were to pass, which it likely won’t — is designed to help people who probably don’t need much help from the government right now.
What’s in the American TRIP Act?
Under Senator McSally’s plan, you could claim a tax credit for up to the amounts above for eligible travel expenses related to the following:
- Food and beverages
- Live entertainment
- Attending a conference or business meeting
To qualify, your travel must occur within the U.S. (including territories), and it must be more than 50 miles from your principal residence. If you drive, you can take a credit of 57.5 cents per mile.
Senator McSally’s bill is much more generous than the Explore America Travel Credit, which was proposed by the U.S. Travel Association and mentioned by President Trump recently. That proposal offers a maximum of $4,000 per household based on 50% of your qualified travel expenses and excludes travel-related expenses under $50.
What’s wrong with the bill?
For someone like me who hasn’t been affected much financially by the pandemic, the American TRIP Act would be a nice treat. But that’s the problem. Here’s why I think the proposed tax credit is a poor way to stimulate the economy right now:
- It’s a tax credit: For most people, travel is a luxury, and with almost 30 million people reportedly receiving unemployment benefits as of the end of May, how many people have the money to travel right now? Even if your trip qualifies, you manage to travel on a budget and you meet all other requirements for the credit, you won’t get that money back until next year when you file your tax return.
- It’s a non-refundable tax credit: There are two types of tax credits: refundable and non-refundable. If a tax credit is non-refundable, it means that it only applies up to the amount you owe in taxes. In other words, if you get a refund every year — roughly 72% of people who filed a 2018 tax return did, according to IRS filing statistics — you’ll get little or no benefit from this tax break. Who are the kind of people who don’t get regular tax refunds? That’s right, the wealthy. And, of course, there’s no income cap to ensure people who don’t need it can’t take advantage of it.
- It’s not what people need right now: Don’t get me wrong, I do like the idea of providing some sort of stimulus for the travel industry. It’s the workers who have suffered as airlines and hotel chains took bailout money, then turned around and laid off their employees. But with so few Americans who can actually take advantage of this credit, I’d rather see another round of cash payments to people who need them.
- We really don’t need mass travel right now: The U.S. has not done a great job at handling this pandemic. We kinda got tired of staying home, and the recent rise in daily cases in more than half of the 50 states shows that. Encouraging mass travel right now seems irresponsible.
Ultimately, my biggest fear is that people will get excited and take a vacation, not knowing that they don’t actually qualify for the credit because they get a tax refund every year. Then we’ll end up with more people traveling in the middle of a pandemic and spreading the virus even more.
What are the chances the TRIP Act will pass?
Based on my research, it’s highly unlikely that the TRIP Act will be included in the next stimulus package, at least not in its current form. There has been bipartisan talk of including some kind of stimulus for the travel industry, but this likely won’t be it.
That said, it’s possible that this proposal could be a springboard for legislators to nail down what eventually will become part of the stimulus package. We’ll just have to wait and see.