What is The Explore America Tax Credit?

As we enter the beginning of summer there is one question on everyone’s mind: “Will I still be able to take my summer vacation?” The answer, according to President Trump, is an unequivocal yes! So much so that the President is willing to pay American families $4,000 to take a vacation by passing the Explore America Tax Credit.

In a roundtable with restaurant executives and industry leaders the President floated the idea of an “Explore America tax credit that Americans can use for domestic travel, including visits to restaurants.”

Let me be perfectly clear, as of the date of this writing this credit is not available nor has it been proposed by Congress. Many are speculating that this credit could make its way into a stimulus package but the odds of this legislation actually passing is fairly low. Here are some details on what the Explore America Tax Credit is.

What Could the Explore America Tax Credit Look Like?

Since the “Explore America Tax Credit” is simply an idea without legislative details it is impossible to guess what the final text of the law would look like – but that’s not going to stop me from speculating. Based on some credible sources, a little imagination and some reading through tax Twitter, here is what an Explore America Tax Credit could look like:

1. Tax credit worth 50 percent of qualified travel expenses incurred in the U.S. between the date of enactment and December 31, 2021
2. Maximum tax credit of $4,000 per household on $8,000 of qualified expenses.
3. Qualified travel expenses would include any expense over $50 that is incurred while traveling away from home in the U.S., with explicit reference to the expense of meals, lodging, recreation, transportation, amusement or entertainment, business meetings or events, and fuel.

Why It May Be a Good Idea?

With a spike in the savings rate due to the Coronavirus pandemic it is unclear if another stimulus check would do much in the way of stimulating the US economy. According to the U.S. Bureau of Economic Analysis the savings rate hit a record 33% during the crisis.

Creating a tax credit that is directly related to spending may be a good idea because it forces taxpayers to spend money in the economy to receive any tax benefit. With restaurants, hotels, airlines and resorts struggling to stay afloat due to the decline in demand, a vacation tax credit might be a win win for industry and vacation goers alike.

Why It May Be a Bad Idea?

With Coronavirus cases spiking in states like Florida, it might be a bad idea to have Americans traveling to vacation hotspots that are now Coronavirus hotspots. Instead of calling the tax credit the Explore America Tax Credit you might as well call it the Spread Coronavirus Tax Credit.

Additionally, with the expiration of the $600 federal unemployment checks on July 31st, Congress may want to focus their sights on getting people back to work instead of sending them on vacation. Given the fact that many Americans are falling behind on their rent and mortgage payments it might not be a good idea to have them spend their limited funds on a vacation while risking eviction.

Lastly, the credit is more likely to benefit individuals least impacted by the pandemic. People like me who have the luxury of working from home and happen to be planning a wedding could potentially have an all expense paid honeymoon on the taxpayers dime. Without an income limitation this could be a windfall for wealthy households looking to travel.

Will the Explore America Tax Credit Actually Happen?

The likelihood of this credit passing is slim to none. With states beginning to reopen and Congress’ hesitation to add to an ever-increasing deficit it is unlikely that a vacation tax credit will actually be passed. However, 2020 seems to be the year of firsts so although it may be a long shot I wouldn’t put it past Congress to sneak this through in the next stimulus package.

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The information contained herein is is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined though consultation with your tax adviser. This article represents the views of the author only and does not necessarily represent the views or professional advice of this publication or the author’s employer.