Why Cruise Companies Missed the Coronavirus Bailout: Tax Avoidance and Foreign Registration
The cruise industry has been one of the hardest hit by the coronavirus pandemic, yet it did not qualify for the federal relief money allocated during the crisis. This article examines the reasons behind this decision, focusing on the tax avoidance strategies and foreign registration of these companies.
Registered Outside the United States
The Cruise Lines International Association (CLIA) claims that cruise lines provide over 100,000 jobs in the United States. However, the lack of US-based operations is a significant factor in their inability to receive bailout funds. Most major cruise lines are registered in countries such as Panama and Liberia, which offer favorable tax treatment and minimal governmental oversight.
By being registered in these foreign jurisdictions, these companies not only avoid paying substantial US taxes but also sidestep the regulations that would apply if they were US-based.
Tax Avoidance is a Key Issue
One of the primary reasons cruise companies did not qualify for the deal is their extensive tax avoidance practices. Many of the employees on the cruise ships, while they may be American citizens, work under contracts that make them effectively independent contractors or low-wage staff. These employees often do not report the full income generated by their work, which in turn allows the companies to avoid paying fair taxes.
As an example, a cruise industry employee might claim a salary of $35,000 for Uncle Sam, while secretly earning significantly more through cash payments for their services. This legal tax avoidance strategy means that these companies are not contributing their fair share to the US economy.
No Strategic Economic Interest in Saving Cruise Lines
Another reason why the cruise industry did not receive bailout funds is the lack of strategic economic interest in their survival. Unlike the aviation industry, which serves a critical purpose in national and global transportation networks, the cruise industry does not provide an essential service. While cruises offer an enjoyable vacation experience, they do not carry the same strategic economic importance as air travel, which is crucial for business, trade, and medical emergencies.
Therefore, the US government saw no compelling reason to provide financial support to keep these companies afloat, as their failure would not significantly impact the overall economy in a strategic way.
Subsidies and Ethical Considerations
Given the lack of American corporate registration and the extensive tax avoidance practices, it is argued that the idea of subsidizing the cruise industry with public funds is morally questionable. Why should US taxpayers support companies that are not substantially contributing to the US economy and have bypassed the usual regulatory and tax obligations?
Furthermore, the sustainability and ethical implications of heavily subsidizing a segment of the travel industry that has contributed to environmental issues such as pollution and overconsumption are also worth considering. In a post-pandemic world, it is critical to reflect on how to support industries that are both economically viable and ethically sound.
Conclusion
The coronavirus bailout was designed to support US-based industries and ensure that jobs and economic recovery efforts were protected. The cruise industry, with its foreign registration and tax avoidance practices, did not meet the criteria for this support. As the industry continues to face financial challenges, it is important to reassess these practices and consider more equitable and sustainable solutions for the future.