From a distance, politics looks like warfare, where opposing armies fight to win at all costs.
But governing is a process of finding common ground. A great example of how that could work is currently unfolding in Augusta.
Gov. Janet Mills has proposed a fair compromise on what was shaping up to be a divisive business tax issue at the start of the young legislative session. Her offer gives Republicans almost all they’ve demanded. They should accept it and move their focus to other issues facing the state.
The issue, sometimes dryly described as “tax conformity,” deals with how businesses should be taxed on income received through the federal government’s COVID relief program.
Under the Paycheck Protection Program, small businesses could apply for loans from the federal government, and the loans would be forgiven if the business met certain conditions, including keeping employees on the payroll.
Maine businesses received $2.3 billion through the program, affecting about half of the state’s private-sector jobs. The owner of the Press Herald received $3.8 million through the program, supporting 300 jobs.
Congress made forgiven PPP loans tax exempt when they created the program last March. When more COVID aid was passed in December, Congress also permitted businesses to deduct expenses paid for with PPP money, providing the businesses a double benefit paid for with federal borrowing.
But the state has to balance its budget. In her budget, Mills proposed treating the federal money as taxable income after payroll and other allowable business expenses were deducted. Fully conforming with the deficit financed federal code was estimated to cost $100 million.
Business groups and Republicans have balked at Mills’ plan, saying that Maine’s small businesses are struggling in the COVID recession, and the state should not add a tax burden to their problems. They said the state could come up with a better way to come up with what is projected to be a $100 million loss of revenue.
This week, Mills responded to their concerns. It was no compromise – if, by compromise, you mean meeting in the middle.
Mills is offering to give tax relief to 99 percent of the employers that received PPP aid, spending an additional $82 million that would come in large part from the state’s budget stabilization fund.
The governor proposes allowing businesses to write off up to $1 million in income from PPP loans, while still allowing recipients to deduct expenses. More than 90 percent of PPP recipients received loans of $150,000 or less. Any business that received less than $1 million would have the same treatment they would receive under the deficit-financed federal double benefit.
The only companies that would have any tax liability under Mills’ plan are the ones that received the biggest grants and have more than a million dollars in profits left over after expenses are deducted.
The size of the PPP loan was based on the size of a company’s payroll, so by definition, they are not the struggling restaurants and motels that are still suffering from COVID-related loss of income. The biggest receivers included law firms, accounting firms and car dealerships – mainly businesses that were not permanently disrupted by the pandemic.
Capping the amount of PPP aid that can be excluded from taxable income is a good way to target relief in a tough budget year where there are many competing interests. There should be bipartisan support for a compromise that fairly settles a divisive issue.
This may not be the kind of deal that will produce material for attack ads in the next election, but it is the kind of governing that most voters say they want to see.
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