It may be light at the end of the pandemic tunnel, but for Massachusetts businesses, especially small businesses and restaurants, the economic impact and financial problems are still very real.
The solution to some of these companies’ financial problems is currently in the hands of lawmakers – but timing is critical. And this is no time for lawmakers to move at their often leisurely pace – a pace slowed by the pandemic that sparked the urgent economic crisis.
A proposal would fix a flaw in state tax law that, if left unturned, affects small businesses that, after receiving federal funding under the salary protection program, did what Congress intended: they passed those funds on to their employees. These small businesses are now facing nearly $ 150 million in government tax liability – it was not the intention of a liability convention, and the Baker administration is perfectly fine if it doesn’t cash in.
But there is no magic wand that can relieve companies of this obligation. It requires a correction of the law.
This also applies to an upcoming rate hike on state unemployment insurance, which would bring local business to its knees, just as many are gradually recovering. Again, this is not a small amount of money – the rate hike that would occur is estimated at 60 percent. According to an analysis by Associated Industries of Massachusetts, the average increase in business per employee would increase from $ 539 to $ 866.
A bill by Governor Charlie Baker, who passed away at the end of the last legislature and was re-submitted this year, would freeze interest rates and approve around $ 7 billion in government loans to replenish the trust fund and repay federal loans, with whom he was kept solvent during the pandemic.
Addressing both tax dilemmas is critical at a time when the business climate is still fragile.
Baker administration officials told a joint hearing of the House and Senate Ways and Means Committees that small business owners (those who are taxed through income tax rather than corporation tax) would earn about $ 150 million without the change in state law must pay taxes on federal PPP loans granted and between $ 25 million and $ 35 million on government grants made by Massachusetts Growth Capital Corporation.
“The companies in my district have been very grateful, but I don’t think many people know that there will be a tax charge later,” said Aaron Michlewitz, chairman of House Ways and Means, at the hearing. Michlewitz’s borough includes Boston’s North End, which is home to dozens of restaurants.
“A lot of these people who get scholarships have never received a scholarship before because they never really had to,” Michlewitz said. “I’m worried about the communication lines – we have to make them strong, which could possibly be too bad.”
Memo to Michlewitz: Don’t worry about “communication lines” anymore and fix it now while there is still time.
Senator Eric Lesser had already tabled a bill to do just that. It now has more than 100 House and Senate co-sponsors and support from the Massachusetts Restaurant Association and the Massachusetts Society of CPAs. The latter, at the very least, pushes for a major signal of agreement during tax filing season – so these companies could apply for an extension while lawmakers mess things up.
Lesser’s bill could certainly be linked to an adjustment to an otherwise job-damaging increase in unemployment tax that would occur due to the April 1st kick.
Adjusting the tax hike would save companies about $ 500 million, but it is considerably more complex than Lesser’s calculation, as it also suggests charging employers an undisclosed surcharge to repay those $ 7 billion in government bonds .
“Legislators must act quickly to both freeze the UI tariff for 2021 and develop a plan to repay federal loans and disbursements over the next few years,” wrote the Massachusetts Taxpayers Foundation in its latest assessment. “The UI rate freeze schedule goes without saying – bills are due April 1st.”
Legislators have certainly paid lip service to the notion that the tax regime is urgent, but like the politicians that they are, they also seem overly concerned about the looks – that they appear too sensitive to the needs of the business. However, the fact is that these PPP loans provided jobs for people that otherwise would not have them. The unemployment benefits that depleted the UI fund went to their own needy voters.
This is not about doing “favors” for the business. This is about keeping these companies – and with them these jobs and business owners – going. Any legislator who can’t see this needs a refresher course in economics 101.
Editorials represent the views of the Boston Globe Editorial Board. Follow us on Twitter @GlobeOpinion.