BOSTON (SHNS) – The spending bill signed by President Joe Biden this week will bring Massachusetts budget relief of over $ 4.5 billion. However, some experts say it could also double the cost of a pair of tax breaks that lawmakers want to extend to a modest level. Companies and low-income workers were unemployed last year.
Part of the new federal law designed to discourage states from using billions in aid money to fund tax cuts prohibits states from using federal aid money to reduce state tax revenues due to a change in state tax law, including new discounts and deductions, balance or credits.
States that use government aid to offset a tax cut “either directly or indirectly” must repay the amount they used, which in this case could be up to $ 225 million.
House and Senate Democratic leaders say they are not concerned about being penalized under the rule when a progressive tax break bill becomes law, but some tax law experts said the recovery provision puts Massachusetts at risk, the cost of that See new tax breaks rise to $ 450 million.
“There is certainly some uncertainty about the exact scope of the federal recovery provision, although the intent seems to be to prevent states from viewing federal aid as a way to reduce state taxes in any way,” said Peter Enrich , a Law Professor at Northeastern University and a member of the Board of Directors of the Massachusetts Budget and Policy Center.
Enrich, who served as an attorney in the budget office of Governor Michael Dukakis, said a final response will likely have to wait for US Treasury Secretary Janet Yellen to give clear instructions, but he said, “It certainly seems to be for determination in the EU State legislation will apply that provides a new tax credit for the low-income unemployed. “
On the same day that Biden signed the historic $ 1.9 trillion bill on Thursday, House lawmakers unanimously voted on Beacon Hill for a tax break package for tax and unemployment insurance that will reduce the tax burden on some small businesses and workers Low income to be reduced by more than $ 200 million.
This relief would result in part from an exemption from state income taxes on small business loans under the federal government’s personal paycheck protection program.
While Massachusetts companies that have received PPP grants are already federal and state exempt from paying taxes on those funds, the new bill would also allow smaller “pass-through” companies to use their profits as the owner’s personal income allow you to continue deducting wages and salaries and other expenses paid for with federal aid.
Critics have called this a “double dip” because corporations make a tax deduction on something they used federal government money to do, but proponents say employers, especially small businesses, can take advantage of the help.
Democratic leaders combined the PPP tax exemption and unemployment insurance relief for employers with a new tax credit for workers earning less than 200 percent of federal poverty. Eligible employees would be entitled to a tax credit of up to 5 percent of their unemployment benefit in 2020.
Estimates of how much tax revenue the state would leave on the table from exemption from PPP grants range from the government’s projection of $ 150 million to $ 175 million by the Massachusetts Budget and Policy Center.
The unemployment tax credit would be capped at $ 30 million in 2020 and $ 20 million in 2021.
House Ways and Means Chairman Aaron Michlewitz said the conversation on Beacon Hill about the PPP grant exemption and the creation of a new tax credit for low-income workers began before the Senate Democrats entered the clawback regime Economic stimulus plan.
“There are guidelines that should be set by the Ministry of Finance, and we will monitor them, but we believe that this will not endanger us,” said Michlewitz.
Both Michlewitz and Senate Ways and Means Chairman Michael Rodrigues pointed out that potential tax revenue on PPP loan granted was not included in the tax estimate prepared by lawmakers and the Baker administration in January, and not used to balance the governor’s budget for fiscal 2022 proposal.
“We are still examining the implications of the US rescue plan that President Biden signed today and what it will mean for the Commonwealth. However, since tax revenues have developed positively for this fiscal year and are doing better than the benchmarks, the aid package currently being passed in legislation that was in development prior to the completion of federal legislation does not rely on the expected federal funding for the provisions regarding PPP and the unemployment tax credit, ”Rodrigues said in a statement.
The change to the tax law related to PPP lending would also bring Massachusetts into full compliance with federal tax law and give lawmakers more confidence that the Biden administration will not try to punish the state.
“I am confident that the steps we are taking, A that we can afford, and B are the right ones for the Commonwealth on the COVID relief discussion,” Michlewitz said.
Doug Howgate, executive vice president of the Massachusetts Taxpayers Foundation, said the Treasury Department’s decision to enforce the clawback regime was a big question mark.
“Everyone needs to pay close attention to the conditions for obtaining these funds, and I think we will wait a little for the federal government,” Howgate said.
An official with the House Committee on Oversight and Reform said her office believes that the Senate Democratic provision “is intended to prevent the aid money from being used for tax cuts that benefit disproportionately higher wage earners.” This committee is chaired by New York Democrat Carolyn Maloney.
The Tax Foundation has also stated that it envisions several scenarios where states could change tax laws over the next two years and either be in compliance with or violate the new law.
Paul Craney of the Massachusetts Fiscal Alliance said he was opposed to restricting tax cuts that could be used in some states to stimulate private sector growth, and he didn’t think the federal government would try to punish Massachusetts for exempting PPPs State income tax grants.
“It’s hard to get an idea because it was all happening so quickly, but when Congress and the previous president designed the PPP loan, it wasn’t intended as a taxable revenue stream for states,” said Craney. “I think the state should take a path that will be forgiven for all businesses, including passages, and I don’t think the federal government will punish them for it.”