During the early days of the pandemic, when wide swaths of the country were first being put under lockdown, Congress wisely decided to enact the Paycheck Protection Program to help small businesses get through the tough times.

The PPP, which gave forgivable loans to small businesses to cover the cost of their payroll, made perfect sense: Government was telling these businesses that they couldn’t operate, so government ought to provide financial assistance to help them through. In this case, it was largely state and local governments telling them to close, while it was the federal government providing the economic relief.

Like any government program, PPP was not perfect – some businesses got loans when they didn’t need them, while in other cases flat-out fraudsters got approved for loans. Still, like the enhanced unemployment assistance and the individual stimulus checks were for individuals, the PPP was vital for many small businesses, allowing them to stay afloat. That’s why Congress decided to fund the program more when they passed a new stimulus law late last year.

Now, here’s where it gets tricky: While the loans were exempt from federal taxes – just like the stimulus checks – they may not be exempt from state taxes. Every year, states have to readjust their tax code to match changes made in the federal code. Usually this process is fairly noncontroversial, if complicated. Sometimes, though, it can become dicey politically, especially when states controlled by one party have to adapt their tax code to changes enacted by the other party in Washington. That’s not the case here, however: Exempting the PPP loans from federal taxes received widespread bipartisan support in the House and Senate.

That’s why it was a surprise to see that last week, when Janet Mills unveiled her supplemental budget proposal, she wanted the state to tax PPP loans, ignoring federal changes. That’s a slap in the face of the small businesses all over Maine that have received PPP loans. Although Mills claimed that it was a simple matter of cost, she could have proposed spending cuts to cover the cost of making the loans tax-exempt. Instead, she made it clear that this wasn’t a priority for her administration and shifted blame back to the federal government, using it as an argument for greater aid to state and local governments. Just as tax season gets underway, Mills is essentially using small businesses as political leverage to get more money from the feds. That’s completely unacceptable, as it makes an already-uncertain economy even more unpredictable. Moreover, it undermines the Paycheck Protection Program as a whole, as it was intended to help small businesses survive, not be a tax windfall for states.

Gov. Mills now is reconsidering her proposal and said she is trying to find federal funds to to fully exempt the PPP loans from Maine taxes as well. If she doesn’t, Republicans in the Legislature ought to draw a line in the sand over this, making it completely clear that they will oppose any supplemental budget that taxes PPP loans. Although they’re not in the majority, the budget will require bipartisan support to pass, so the Republicans have the opportunity to force the issue.

While it’s certainly true that Maine is not the only state facing a fiscal crunch because of the pandemic, we’d be in a much better position to deal with it if the Legislature hadn’t run wild spending money with Mills’ first biennial budget. Since they were in full control of state government, Mills and the Democrats are fully to blame for that reckless spending. If they’d been more cautious and fiscally responsible, the state could have afforded the $100 million it costs to make the PPP loans tax-free. This is a prime example of poor decisions later causing problems, and it’s not just because of the pandemic: That budget would have been problematic whenever the next economic downturn hit. At the time, Republicans called it fiscally unsustainable, and recent events have proven them completely correct.

It’s worth remembering that when Republicans were in full control in Augusta, they weren’t content to simply leave taxes at the current rate: They dramatically cut them, within the constraint of a balanced budget. Moreover, rather than penalizing the business community with tax uncertainty, Republicans worked to ease regulations and help businesses thrive. If Republicans want to regain the majority, they need to make it absolutely clear to taxpayers and business owners that they’ll fight for them, rather than to expand government.

Jim Fossel, a conservative activist from Gardiner, worked for Sen. Susan Collins. He can be contacted at: [email protected]
Twitter: @jimfossel

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