This is the last chapter in a four-part series where we’ve been previewing the important business aspects that we’ll need to focus on in the year ahead. The goal is to help our citizens understand where our businesses are at, and let them know how we can help them thrive in 2021.

In Part I, we looked at the overwhelming issue affecting business recovery, namely, that COVID-19 is still with us in 2021. In Parts II and III we examined how COVID affects business planning with a four-point decision-making approach and dual planning. This week, I want to focus on policy issues facing our state and federal leaders. The decisions made in the coming weeks and months will shape how quickly we can recover economically and it will lay the groundwork for the next decade.

The most important aspect of the current, and future, policy debates is to know that, from what I’m hearing, business losses in 2020 were on average around 30%. Some businesses did better than that, some did worse, but that’s the anecdotal average I’ve come to. For businesses who have annual gains of 3%-5%, on the low-end, a 30% loss is devastating.

This colors every decision because, not only do the businesses, on the whole, not have the income they normally do, but also the tax revenue generated from sales tax, lodging tax and use tax is considerably less. This means, the government needs to come up with revenue somewhere or they need to cut services which brings us to:

Maine State Budget & PPP Tax Conformity

The Paycheck Protection Program, started by the federal government in April, was for businesses to get funds to help with specific business aspects. The idea was to keep employees employed and to cover some regular business expenses, so the portion of the funds used for certain aspects, for example, payroll and rent/mortgage, would be forgiven, meaning not need to be paid back. The program was a great help to businesses, and a second round of PPP opened last month.

Tax conformity, by definition, is the federal and state government treating similar items the same way for tax reporting purposes. For example, let’s say you donate a couch to Goodwill, if both the federal and state government say you can deduct that expense from your taxable income, then they are conforming. If one says it’s deductible but the other does not, then it would be said they are not conforming.

When Gov. Mills released the first draft of the state budget, the proposal was for the state to not conform to the PPP the same way the federal government does. Both the federal government and the state proposal includes businesses deducting expenses paid for with the PPP funds (such as rent and payroll). Yet the state will require businesses to count PPP funds received as income, increasing their tax burden, while the Federal government exempted the funds from taxable income.

The estimate of impact for Maine businesses reaches over $80M dollars. On the other hand, in order to balance the budget, the state needs to make up for the tax revenue shortfall somewhere. Since releasing the draft, Gov. Mills has heard the voice of businesses on this and has vowed to look for alternative solutions for replacing this $80M-$100M in tax revenue, but with such a tough year, it’s hard to find where else to get that money. How this issue gets resolved will have a tremendous effect on businesses.

The Biden Stimulus Package, $15 Minimum Wage and the Tip Credit

Nationally, the issue is President Biden’s $1.9 Trillion stimulus package that includes state and municipal funding, school re-opening funding, $1,400 stimulus checks, vaccine distribution funds and more. Two areas I want you to watch in these negotiations are the minimum wage and the tip credit.

Devoted readers of my columns will know what I’m going to say but it bears repeating nevertheless: the minimum wage isn’t as much of an issue for what the rate is, but rather how quickly you raise the rate to get to that number. There is a much deeper explanation I’ll go into another day, but essentially payroll is a line item in every business budget. The difference in increasing payroll 10% per year over five years, rather than 50% in one year, will determine whether businesses can adjust their wages, labor hours and benefits packages to maintain their staffing. Think about your own personal budget, if your rent/mortgage went up 10% over five years or 50% in one year, which would be easier for you to handle?

As far as the elimination of the tip credit goes, which is the hourly wage program for restaurant servers and bartenders beyond their tips, it boggles the mind to know elimination is even being considered. The tip credit was eliminated in Maine in 2016 and reinstated seven months later as the restaurant industry held one of the longest committee meetings in the history of the state as hundreds of servers testified how this was hurting them. Since then, a national lobbying group has tried to eliminate the tip credit in New York, Seattle and Washington D.C. (to name a few) and each time the restaurant employees have stood up and pleaded with it killing their livelihoods.

The workers do not want it. Why? Because, according to the National Restaurant Association servers average $19-$25 per hour or more, so why would they want a pay cut? In 2019, an industry publication Upserve asked 1,000 restaurant employees if they wanted to eliminate the tip credit, and 97% said no. It’s a colossally bad idea. Will legislators listen to them or the lobbying group claiming it’s the better way to go, despite restaurant workers fervent opposition? We shall see.

Comments are not available on this story.