Inside Augusta

Adding insult to injury: Governor Mills and the PPP

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The Paycheck Protection Program, part of the federal CARES Act passed last year, was crafted by Congress to provide loans to businesses that would be forgiven if they spent the funds on qualifying payroll and non-payroll costs. It was created to help incentivize businesses to retain their employees through the economic downturn caused by state and federal efforts to suppress COVID-19. The point of the program was to keep workers’ wages intact even if their employers could not operate due to pandemic restrictions.

Conflicting portions of the Maine and federal tax codes presented the Mills administration with a choice: to tax or not tax PPP payments to Maine employers. But state budget commissioner Kristen Figueroa, in testimony to the legislature’s appropriations committee at a meeting in late January, proposed taxing these loans as income to reap a $100 million benefit for state coffers. Figueroa rationalized the move by mentioning the administration’s dedication of nearly $300 million to the state unemployment fund and $250 million in business recovery grants; this is how they “avert enormous business tax increases” in the budget proposal.

After widespread condemnation of the plan, two days later Gov. Mills said she wanted to “solve the PPP issue” and instructed her budget team to find more federal funds to cover the gap. She did not mention the potential for higher business taxes.

By sparing struggling businesses from its warpath of taxation, the Mills administration would signal to Maine’s job creators that they are looking out for the future and honoring the intent of the federal benefit. More than $7.6 billion in federal pandemic aid flowed into the state within just one year, an amount nearly equivalent to the State of Maine’s two-year budget. Over 28,000 Maine businesses received $2.3 billion in PPP loans to maintain their payrolls, but now activists on the left are getting blinded by the dollar signs.

Mills and her big government allies refer to leaving PPP alone as a “double tax cut” or “double benefit” to business interests, but their argument reeks of elitism. Is running a profitable business a gift, or is it the outcome of hard work and persistence? Thousands of Maine businesses were forced to close, yet still needed to pay rent, utilities and employees to make it to the other side of the shutdowns. Now, state government should take a slice out of their life raft? I don’t think this is special treatment; this is the bare minimum we should expect from our government when it forces businesses to close and tells all their customers to stay home.

We each own the fruits of our labor, but listening to this, you’d think it was all the state’s money. They just allow us to keep some of it, sometimes.

The argument rings hollow from groups constantly clamoring to crush job creators with a new tax hike, but they also claim the move would be unfair since other pandemic benefits like unemployment and delayed student loan payments are also taxed.

But, it doesn’t have to be that way. It is all a consequence of policy. Some states are moving to exempt all COVID-19 emergency benefits from taxation. A bill in the Alabama legislature would be one of the most comprehensive proposals on the issue, according to tax experts, and would not count any of the above mentioned forms of relief as income for tax purposes. What stops us from doing the same thing here in Maine? The governor and her allies’ unquenchable thirst for spending.

Maine is one of 35 states that tax unemployment benefits, but the federal government also taxes unemployment benefits. The difference with PPP is that Congress intended for the payments not to count as taxable income.

It’s clear the governor and her allies just want to squeeze as much as they can from the federal funds that came to Maine in support of individuals and businesses, after continually begging Washington D.C. to bail them out of their irresponsible spending. They want to use federal funds for “revenue backfill.” This has been Mills’ top strategy for solving the problem of lost tax revenue, an ailment she created by strangling the economy with a year of persistent, unworkable mandates. 

Thousands of businesses have closed, even with the PPP aid, and taken their employees down with them. Congress crafted the PPP so businesses could keep supporting their employees, but sadly, many in the governor’s ear would rather balance extravagant spending on the backs of struggling businesses.

About Nick Murray

Nick Murray, of Cornish, currently serves as Policy Analyst with Maine Policy Institute, writing, researching, and bringing Mainers together over the issues facing the state. Previously, he served as Outreach Coordinator, planning events to spread the word about Maine Policy's work to new audiences around Maine.

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