Maine Gov. Mills Proposes Compromise PPP Tax Solution

(The Center Square) – Maine Gov. Janet Mills is hoping a compromise to extend tax breaks on Paycheck Protection Program loans will convince critics to support the measure.

Her new plan aims to match the federal government’s double benefit on the first $1 million of PPP received. It would provide tax relief for small businesses that need it the most. Those that received more than $1 million in PPP would enjoy partial relief.

“With this proposal, we are matching the measure enacted by the Congress in late December to deliver full tax relief to 99 percent of Maine businesses that received PPP in order to do the most good for the most businesses and the most employees,” Mills said in a statement Tuesday.

Mills hopes the new plan will narrow the rift between those supporting full conformity to the federal government’s double benefit and those against it while at the same time providing tax relief to the state’s most vulnerable businesses.

Republican lawmakers had vehemently objected to Mills’ initial proposal, which involved taxing the loans in order to balance her projected $8.3 billion budget for the next two fiscal years. It was anticipated the tax would help decrease a $100 million shortfall in next year’s spending plan.

The needle isn’t moving for Maine GOP Executive Director Jason Savage, who criticized the first plan.

The state wouldn’t have the need for additional funding had Mills not increased state spending by more than $1.2 billion in her first two years of office, according to Savage, and was something Republicans warned of when the governor was planning spending increases he said the state could not afford.

He believes the backlash Mills faced initially was the only reason she searched for another option, and that even the new proposal was not enough to help.

“Under this compromise, there are still more than 250 Maine businesses that employ more than 40,000 Mainers that will be hit by this pandemic tax,” he said. “Republicans feel this compromise is essentially Governor Mills picking winners and losers in the economy.”

GOP proposals to eliminate the pandemic tax were voted down by Democrats on Maine’s Taxation Committee twice before this latest proposal, Savage said. Things only moved forward when Mills said she could find federal dollars even without addressing any of the state’s long-term budget problems.

“Helping our small businesses survive should have been the first priority, not the last,” Savage said.

While there is widespread support for the new plan, according to David Clough, state director of the Maine chapter of the National Federation of Independent Businesses, he also warned Mills to avoid imposing unnecessary new costs on operations or employment at a time when so many small businesses are still struggling to survive the trauma of sudden restrictions and extra costs associated with the pandemic.

“It would be ideal if legislators refrained from imposing new wage and employment costs, new taxes and costly new regulations,” said Clough. “Do no new harm.”

The initial plan did not provide for tax relief for any of the nearly 27,000 businesses that received a PPP loan, he said. All businesses would add back the forgiven amount to the taxable income of the business.

The new plan gives some tax relief to all businesses with a forgiven loan that provides full PPP tax conformity for more than 99.1 percent of the businesses that participate in the program.

With approximately 251 businesses with a PPP loan greater than $1 million, and the degree of tax conformity relief ranging from nearly 100 percent for a loan of $1,000,0001, to 10 percent that took the $10 million maximum loan, Clough said the revised plan is a tremendous boost for nearly all businesses.

“The positive responses of public officials, customers, workers and the public generally have been very helpful,” Clough said. “Like natural disasters bringing out the best in people, the pandemic economic crisis has brought out the goodwill and can-do spirit in people. It’s never been more important to shop local, buy local, and support local small businesses.”

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