The United States economy is grinding to a halt as the country grapples with the novel coronavirus pandemic, and one of the first major actions President Trump has floated is having the government bail out the cruise line industry, which he says is a “prime candidate.” He shouldn’t do it.
It may be wishful thinking that he won’t. Trump has proven he’s willing to give preferential treatment to big corporations over almost anything else (save for himself), like when he signed a giant tax cut for corporations masked as relief for the working class.
But there are myriad reasons not to bail out the cruise industry’s biggest players. Here are just a few:
They’re not really US companies. Carnival Corporation is incorporated in Panama. Royal Caribbean is incorporated in Liberia. Norwegian Cruise Line is incorporated in Bermuda. These three cruise companies combine to make up around 70 percent or more of the global cruise ship market, depending on how you measure it. And while they operate offices in Miami, Florida, they are all incorporated in countries with very different labor, tax, and other laws than those of the US. Their ships fly flags of these countries, too. What’s more, a large number of cruise ship employees are from Europe, the Caribbean islands, and the Philippines. These companies are not big job creators for US citizens in the way that other bailout targets like Boeing or airlines like Delta, United, and American are. Also...
They pay basically zero federal income tax. With all of that in mind, it shouldn’t surprise many people that these big cruise companies essentially pay no federal income tax in the US. True, each company is actually a conglomeration of a bunch of smaller companies, and there are some cases where their subsidiaries might be subject to federal (and state) income tax laws. But most of those entities don’t have to pay, thanks to Section 883 of the Internal Revenue Code, which exempts:
Gross income derived by a corporation organized in a foreign country from the international operation of a ship or ships if such foreign country grants an equivalent exemption to corporations organized in the United States.
Carnival, the biggest of the three, said in its most recent annual filing with the Securities and Exchange Commission that it is made up of “primarily foreign corporations engaged in the business of operating cruise ships in international transportation.” Its Holland America Princess Alaska Tours subsidiary is the company’s only truly domestic operation, so that is subject to federal and state income tax. But that’s about it.
The top three cruise companies are incorporated in Panama, Liberia, and Bermuda — places with low taxes and lax labor laws
And that’s the point. Cruise companies could base their operations in the US and whip up complex corporate structures to evade some or all income taxes, just like many other multinational corporations do. But they don’t bother with the facade. Norwegian said flat out in its most recent annual filing that under “current Bermuda law,” where it’s incorporated, the company is “not subject to tax on income and capital gains.” In fact, it recorded a net tax benefit in 2019. Royal Caribbean explained in its filing that “most of our income (including that of our subsidiaries) is derived from or incidental to the international operation of ships,” and is therefore exempt under Section 883. These companies are so reliant on this setup that they admit in those same documents that changes to the way they are taxed would put the health of their businesses at risk.
They’re bad corporate actors. These companies use the protections offered by the countries they are incorporated in as a shield. They make passengers sign over a ton of rights before they even come aboard. Many employees often face long hours and brutal working conditions. Worst of all...
They pollute the air and oceans. Every fossil fuel-powered mode of transportation pollutes the air, but cruise ships are among the worst. They emit more sulfur dioxide than all of the passenger vehicles in Europe combined. Cruise ships also pollute the oceans by dumping waste. Not just illegally, for which these companies have been repeatedly fined, but also in some cases with impunity, again thanks to protections afforded by the laws of the countries where they’re incorporated. And where they’ve been caught, there have been coverups.
They aren’t necessary. You can make a compelling argument that the airlines should be bailed out because they are a type of transportation we’ve become reliant on. (Whether they should be, or what strings should be attached, is a whole other argument that has already been competently made by Aaron Gordon at Vice and Tim Wu at The New York Times.) Cruise ships are not essential, though. Nobody gets on a cruise ship because they need to go to Turks and Caicos. Cruise ship companies offer a tantalizing proposition, to be sure, by selling all-inclusive, hassle-free vacations at what can feel like cut-rate prices. But they’re not something we need.
If the Trump administration is really going to bail out the cruise industry, there should be a focused attempt on making these companies change these behaviors. Sens. Ed Markey (D-MA), Richard Blumenthal (D-CT), Sheldon Whitehouse (D-RI), and Tammy Baldwin (D-WI) got the ball rolling in a letter to Senate leadership last week, though it was mostly focused on the airlines. Cruise ship reform would take a much more concentrated effort.
The role that cruise ships played in the spread of the novel coronavirus should also be considered in any bailout package. Top employees in charge of Carnival’s Diamond Princess ship were delayed in responding to an early confirmed case of the coronavirus. The ship ultimately became “the largest outbreak outside mainland China” in the early stages of the pandemic, according to the Centers for Disease Control and Prevention.
Another Carnival-owned ship, the Costa Luminosa, reportedly took a week to implement strict sanitary protocols after a passenger was evacuated when she showed symptoms of COVID-19, the disease caused by the novel coronavirus. Mangers at Norwegian Cruise Line pushed disinformation to try to keep booking people onto cruises after the virus went global.
These companies do employ workers in the US, and the government should be doing what it can to help them, just like they should be doing with everyone else who makes up our now-imperiled economy. But handing these companies money with no strings attached is a bad idea. Even Carnival Corporation’s CEO told Axios that he doesn’t think a straight bailout is the best path forward. So don’t do it. Put the money to better use, like saving our country’s public transportation systems.