Ice Cube Has Some Coronavirus Stimulus Advice Wall Street Will Love

Rapper-turned-Hollywood celeb Ice Cube has some advice for Washington’s coronavirus relief efforts that Wall Street will absolutely love: read his lips, don’t pay taxes.

The Compton rapper was responding to a Time magazine report that highlighted how a lot of the coronavirus relief aid went to wealthy individuals and companies.

TimeWhy the $2.2 Trillion-Dollar Bailout Benefited the Rich

The magazine looked at money allocated in the CARES Act and they saw that there was an “inequitable distribution” of money. Of course their main source was an Obama appointee, Neil Barofsky, who oversaw the Troubled Asset Relief Program as Inspector General under the Obama administration.

How TARP helped anyone on Main Street is unknown. No, in fact it is known — it didn’t.

The CARES Act was the biggest Main Street bailout in the history of American economic crises, and it was as heavily written by Democrats as Republicans.

In addition, the Fed put up $600 a week for four months to those receiving state unemployment benefits, or $2,400 per month. That is more than all part time and most full time retail employees earn on a monthly basis.

Senator Chuck Schumer called it “unemployment insurance on steroids.” Doubtful Schumer was touting how great it was for the upper classes who lost their jobs at Ogilvy.

They also allowed for sole proprietors, including gig economy workers like Uber

UBER
drivers, to receive unemployment and, if they filed a Schedule C and 1099 to the IRS, were qualified for the payroll protection program; money they could use to pay themselves and not have to pay it back to the government.

Small business owners may very well be considered rich compared to bartenders and airport baggage handlers, but they are not Goldman Sachs

GSBD
rich. They own private businesses and they were bailed out with emergency grants from the Small Business Administration, and payroll protection used to pay their workers.

Here’s an example of the “rich” that got stimulus: Vijay Chandran, CFO of Zenfoods, a Sun Valley, California fresh food delivery service with 40 employees.

“We got PPP for all of them,” he says. “We sell a high end product so when someone losses their job, or their bonuses are cut, so are we. We are one of the first services to go. So many companies got hit by Covid-19. Law firms are getting killed because business dried up. Advertising, killed. The ripple effect is substantial. I don’t think people have any idea how this is hurting blue collar workers and white collar workers alike. Without these programs we would be laying off.”

One of the bigger controversies in those programs, however, were wealthy, private colleges like Harvard, NBA teams like the Lakers, and cash rich chain restaurants like Ruth’s Chris Steakhouse receiving grant money that was initially meant for small, privately held enterprises like Zenfoods.

On the tax front, so far taxes have been postponed but they will eventually be due.

All of the money people have accumulated over the last few months, especially small businesses and sole proprietors, including people like Ice Cube, who is his own boss or a contract employee, didn’t have to pay first quarter estimated taxes yet. Or second quarter.

But a lot of that money sitting in checking and savings will eventually go right back to the IRS. If Ice Cube has $100,000 sitting in cash from his labor from January to June, about $30,000 of it is going to Uncle Sam.

Small business owners and gig economy workers who were lucky enough to get the payroll protection plan may also have to turn a portion of that money back to the IRS anyway as taxes will eventually become due. PPP will basically cover the tax load. In other words, got $30,000 from PPP but owe $30,000 in taxes? There it goes.

Ice Cube has gone Tea Party on us.

What can possibly be so bad about a tax holiday — at least for money earned in the first half of the year.

If you’re going to force people to stay home, and close their businesses, all the while having to pay their rents and leases, the least you can do is give them a tax break, as opposed to a postponement of payments due.

Barclays thinks that President Trump’s call for a temporary payroll tax cut would be the quickest and relatively efficient way to give money directly to people who are still employed.

Payroll tax cuts were used by the Obama administration in 2011 and 2012 as part of the 2010 Tax Relief Act. Those cuts halved the rate of payroll taxes paid by employees from 6.2% to 4.2%. At the time, the reduction in the payroll tax increased disposable income by about $100 billion per year, a potential liquidity shock to the upside.

“A payroll tax cut could provide a material jolt to economic activity,” says Mike Gapen, Barclays’ U.S. economist.

A tax holiday is not on the table in the next phase 4 relief program, which is expected in late July. But if it was, and it should be, that’s as good a stimulus as any.