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For weeks, Maine Republicans have been demanding full compliance with a new federal tax law to completely exempt all paycheck Protection Program loans from state income taxes.
On Thursday, the Democrats in the legislature’s Budgets Committee agreed a supplementary budget that includes this tax change – along with tax breaks for Mainers who have received pandemic unemployment benefits and some direct caregivers. The Republicans on the committee voted against.
Republicans in the State House now want more state tax cuts for companies, many of which are unrelated to the pandemic and which the state previously decided not to pass after Republicans passed a tax cut bill in Congress in 2017.
Rather than paying tribute to a victory – they’ve successfully moved many Democrats and Governor Janet Mills from minimal tax compliance to full PPP funding compliance – Republicans are now threatening to condemn an extra budget that will be put to the vote in the legislature next week . The budget, soon to be passed so that Maine businesses and individuals can fill out their tax returns clearly, needs two-thirds of the legislature’s backing for it to take effect immediately.
Republicans also want more leverage over how the state spends federal funds it has, which it is likely to receive as part of packages in support of the federal pandemic. That may be reasonable in theory. But being inflexible in the supplementary budget probably doesn’t give Democrats, who control both houses of the legislature, much confidence that Republicans would be cooperative partners in these decisions. Not when Republicans seem to believe that compromise means agreeing wholeheartedly with their positions.
To show that they are sensible negotiators who have more difficult talks on the larger two-year budget, Republicans should accept their gain on PPP tax compliance in the supplementary budget. If they can, the Democrats should be more willing to ponder two-thirds approval for federal pandemic fund issuance.
In January, Mills proposed treating PPP loans as taxable income, but allowing companies to fully deduct the costs associated with those loans. She said the state cannot afford the estimated $ 100 million necessary to fully comply with the federal tax law, which was amended in December to exempt PPP loan funds from federal income taxes.
A month later, the governor proposed exempting the first $ 1 million PPP loan funds from state income taxes. According to their government, this would extend a tax break to 99 percent of companies and focus the tax break on the state’s smallest companies. Only 251 companies in Maine, including the Bangor Daily News, had loans greater than $ 1 million. The average PPP loan in Maine was around $ 80,000.
After briefly endorsing this plan, the Maine State Chamber of Commerce continued to oppose the governor’s plan, pressing for full compliance, a call long echoed by the Maine Republican Party and the party’s assemblies in the legislature.
Earlier this week, Democrats agreed to support the full exemption from state income tax on all PPP loans, but added provisions to exempt a significant portion of pandemic-related unemployment benefits from state income tax. As part of the revised supplementary budget, this tax break will go to 160,000 Mainers who were unemployed at some point during the pandemic. The cost of this $ 47 million provision will be paid out of the unexpectedly high revenue from liquor sales in the state. The PPP income tax break will be covered by funds the governor originally proposed to invest in the Rainy Day Fund, unspent government revenue, and upcoming revenue expected to be higher than expected.
The combination of tax breaks for both Maine businesses and people of Maine who have been unemployed is a late change in the budget, but reasonable. The PPP was created to help businesses meet their expenses during the economic deadlock of the pandemic. If they kept the employees on the payroll, the loans would be granted. In addition, when calculating their taxes, companies can deduct PPP-related costs, which are broadly defined and include the cost of rent, utilities and worker protection related to COVID-19.
Despite this government aid, some companies have closed and made their employees unemployed. Other employees laid off or on leave. Many of these workers received unemployment benefits, which are usually subject to state income tax.
In this situation, it makes sense to treat financial aid from individuals and companies equally.
The full legislature is due to meet on Wednesday to vote on the revised supplementary budget, which will cover government spending and revenue for the remainder of the fiscal year ending June 30.
With many individuals and businesses preparing their tax returns by April 15th, timely coordination on the budget – and its tax rules – is imperative. The Republicans secured the main business breaks they had been seeking for weeks. Democrats added breaks for Mainers who lost jobs and incomes during the pandemic. This is a compromise worth supporting.