January 20, 2022

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Did PPP work? (redux)

A while back, we discussed whether or not the Paycheck Protection Program (PPP) actually worked. Yes, businesses obtained funds, which kept people on the payroll and the lights on. But as a massive government program hastily designed and implemented with ambiguous goals, constantly changing rules, and susceptibility to fraud, was it a success? It’s less clear.

But here’s a working paper from the National Bureau of Economic Research (NBER) that crunched a bunch of numbers to come up with an answer. From the abstract:

The Paycheck Protection Program (PPP) provided small businesses with roughly $800 billion dollars in uncollateralized, low-interest loans during the pandemic, almost all of which will be forgiven. With 93 percent of small businesses ultimately receiving one or more loans, the PPP nearly saturated its market in just two months. We estimate that the program cumulatively preserved between 2 and 3 million job-years [i.e., one job for one year] of employment over 14 months at a cost of $170K to $257K per job-year retained. These estimates imply that only 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost jobs; the balance flowed to business owners and shareholders, including creditors and suppliers of PPP-receiving firms. 

So, probably not a great result if your program is supposed to “protect paychecks.” But why did so much money go to (seemingly) unintended recipients? Back to the abstract:

PPP was essentially untargeted because the United States lacked the administrative infrastructure to do otherwise. The more targeted pandemic business aid programs deployed by other high-income countries exemplify what is feasible with better administrative systems. Building similar capacity in the U.S. would enable greatly improved targeting of either employment subsidies or business liquidity when the next pandemic or other large-scale economic emergency occurs, as it surely will.

It’s a familiar story. A federal government program falls short of its mandate; in response, you have a group of people—in this case, the NBER— saying, “Well, we need to give them more money so they can build the proper infrastructure to properly do their job in the future.” 

It’s understandable. According to this Congressional Research Service report, before the pandemic, the Small Business Administration (SBA) spent about $1 billion a year on disaster assistance, loans, and other programs. In 2020, it spent $589 billion, and most of that was “supplemental disaster assistance” (aka PPP, etc.). It’s doubtful that the SBA had the necessary processes or resources in place to administer all that money the way it was intended. Maybe, the NBER is saying, we should consider funding the SBA to build the necessary systems so it’s ready the next time a catastrophe hits and turns every small business upside down.  

But you’ll always have people who will look at past performance of a government agency and say, “They do a terrible job. Look at all this wasted money. Until they get their act together, they don’t get any more money.” So the government agency muddles on with antiquated systems and tools and nothing improves. The lack of improvement proves the detractors’ point, so they continue to oppose any additional funding.

The IRS is in a similar quagmire. It’s warning that this tax season will be frustrating because it is underfunded, understaffed, and is still working through a backlog from the past two pandemic tax seasons. No one would blame you for thinking, “Well, let’s allocate more money to them so they can upgrade their systems, hire more people, and resolve issues more quickly.” But a very similar group of people will say that the money will go to waste. That giving the IRS more money won’t improve service to taxpayers, but it will be used to harass them instead.  

Regardless of the arguments, government agencies like the SBA and IRS make convenient scapegoats when things don’t go right. “Oh, it’s going to be another awful tax season. Thanks, IRS!” they’ll say, when of course it’s going to be awful. The IRS is doing more with less more than anyone else, and it’s been that way for years. They’re only responsible for financing the largest, most complex government of the largest, most complex economy in the history of the world. It isn’t anywhere close to having the necessary resources, and we expect them to bootstrap it.  

As accountants who work with agencies like this every day, I don’t know how you put up with it. You serve clients, and many of these clients have to work with government agencies. And because government agencies can occasionally be complex and scary, that’s where you come in, to help them comply with the law or participate in a government program. Still, when government agencies like the SBA and IRS struggle to do things effectively, I’m not sure why more people who work with them don’t say, “What do they need? Whatever it is, can we give it to them so they can do their jobs?” 

But oh, look! Some accountants are saying that! 

A coalition of 11 stakeholders groups from the tax practitioner community are urging the IRS to take action to reduce unnecessary burdens for taxpayers and practitioners during the upcoming filing season. 

One of these groups is the National Conference of CPA Practitioners, whose tax chair, Stephen Mankowski calls out the problem:

Much of this stems from the fact that the IRS is absolutely underfunded, Mankowski observed: “We support giving adequate funding to the IRS.”

Roger Harris, president of Padgett Business Services, another member of the coalition, agreed. “Underfunding of the IRS is a reality. The pandemic made a bad problem worse,” he said.

Now imagine what the IRS has been going through for years and apply that situation to the SBA in a stretch of 12 to 18 months. They were tasked with an enormous responsibility—administering PPP, enhanced EIDL, and other rescue funds—that impacted millions of people. But the size and scope of those programs was so many magnitudes greater than anything it had ever had responsibility for. We may be lucky that it didn’t perform worse

Tax compliance for NFTs

Elsewhere in stuff that the IRS isn’t ready to handle:

Investors and creators of nonfungible tokens — a market that has ballooned to $44 billion, Chainalysis data show, and attracted fans from Justin Bieber to Melania Trump — face billions of dollars in taxes and rates as high as 37%, according to tax experts. Internal Revenue Service officials who deal with tax evaders say they are gearing up for a crackdown. 

Oh, man. People trading digital certificates of authenticity for bored apes, et al. thought this was all good, pointless online fun. Nope!

The surprises looming for NFT enthusiasts when tax filing season begins this month are crypto’s latest wake-up call from Washington as officials across the U.S. government set their sights on the burgeoning industry. The rules about taxing tokens aren’t clear, leaving NFT collectors scrambling to calculate how much they owe. Investors may not realize they need to pay any taxes at all or that they should file more than once a year, increasing the odds they’ll face future penalties.

“You don’t get to not report gains or losses because the IRS has failed to provide guidance that meets your expectations,” said San Francisco-based tax attorney James Creech. 

Some NFT enthusiasts are probably old enough to remember when crypto fanboys learned that taxes were a thing. It may take a couple go-rounds with these new digital assets before people really get the hang of it, though.


I mentioned this last week, but I started a podcast with Greg Kyte called Oh My Fraud. The first episode, Printer Toner Pirate King, is now available, and you can listen wherever you get podcasts. But! You can get free CPE for listening to it on Earmark. Download the Earmark app and go to the Oh My Fraud channel to get started earning CPE for listening to podcasts. Tell your friends.

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Caleb Newquist Caleb is Editor-at-Large at Gusto. In 2009, he became the founding editor of Going Concern, the one-of-a-kind voice on the accounting profession, serving in the role for 9 years. Prior to Going Concern, Caleb worked as a CPA for nearly 6 years in New York and Denver. He lives in Denver with his wife, two daughters, and two cats.
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