Janet Mills and the GOP have little time to strike a deal on how to tax Maine businesses that have received pandemic loans

AUGUSTA, Maine – Governor Janet Mills faces a tight deadline to reach consensus with Republicans on corporate tax compliance, an issue that has become her first major sticking point with the minority party and could affect a draft early budget law.

Lawmakers are expected to meet for the first time since December at the Augusta Civic Center on March 10 and 11. The full agenda is not certain, but lawmakers should use Mills’ Supplementary Budget, which would implement savings and money-saving measures to stem some of the projected $ 650 million shortfall. dollars facing the state over three years.

Tax compliance is the major issue with the proposal, raising questions about the state’s plan to combat the economic fallout from the coronavirus pandemic. Mills transferred money she was going to put into a reserve fund to pay for an $ 82 million plan to completely forgive state taxes on Paycheck Protection Program loans to businesses that have got less than $ 1 million from the program.

It was a reversal of Mills’ original plan to tax the proceeds of federal loans, which sparked an uproar from business interests and Republicans. Many are now pushing for full compliance, arguing that the Democratic governor’s position picks winners and losers when economic recovery is uncertain. The two-thirds majorities required in both houses to enact changes before tax day on April 15 leaves little time to come to an agreement.

Republicans have indicated the issue is a top priority, with Senatorial Minority Deputy Leader Matt Pouliot d’Augusta saying anything that is not full compliance will reduce his party’s support for the supplementary budget.

“To say that the $ 81 million was not a good first step would not be true,” said Representative Micky Carmichael, R-Greenbush, who sits on the Legislative Assembly’s tax committee. “But we have to go through with it.”

According to Mills’ plan, loan proceeds in excess of $ 1 million would be taxable income in Maine, although it is subject to certain deductions. This would provide 99% of businesses with a full rebate, leaving 251 large businesses collectively employing 43,000 people to claim some of their federal loans as income. (They include the parent company of Bangor Daily News, which got a loan of $ 1.6 million in 2020.)

This means the sides are separated by around $ 18 million. Mills’ original proposal came after Congress made a late amendment in December to clarify that canceled loans did not constitute income for federal tax purposes. Loans have been granted to companies based on their payroll.

While the proposed compromise is not “ideal”, it is the best way to balance the budget crisis by helping the small businesses that have struggled the most during the pandemic, said Heather Johnson, commissioner of the Department of Economic Development and community of Maine. The proposal was hailed by Democratic legislative leaders as a good compromise, while some progressives opposed giving additional benefits to companies.

Lindsay Crete, a spokesperson for Mills, hit back at Republican criticism to say the governor had negotiated on the matter. She characterized the positions of full compliance and non-compliance as “all or nothing” approaches.

“Rather than delaying this or making significant progress on budget matters in a timely manner, [Mills] hopes Republicans will recognize that she offered a fair compromise, ”Crete said in an email. “Whether they do it is up to them. “

Mills said she would like to support full compliance, but said the state couldn’t afford the total price tag of $ 100 million that comes with it. Republicans say the governor’s proposal unfairly penalizes big business.

“The price to pay compared to the benefit is low,” Pouliot said.

Dana Connors, president of the Maine State Chamber of Commerce, said he initially supported the governor’s compromise but started pushing for full compliance once he saw the scale of the businesses concerned. He said the additional $ 18 million needed to cover all businesses should be “manageable” for the state.

But Johnson, the economic development commissioner, said not all industries will recover in the same way. Some companies might need the monetary boost from full compliance, but others would benefit from a faster economic recovery – something she said could be achieved through the bond proposals Mills proposed in his budget speech.

Two politically connected businessmen diverged on the plans on Wednesday. Shawn Moody, Mills’ 2018 Republican opponent and founder of Moody’s Collision Centers, said he appreciated not having to claim the first million dollars out of 3 million loans. But the possibility of having to pay taxes on the rest would weigh on 240 employees who are co-owners of the company.

“It’s almost like encouraging businesses not to grow,” he said.

But Adam Lee, president of Lee Auto Malls, said the $ 5.5 million loan his company received had helped him bring back employees after initially putting dozens on leave, but business continued. . Lee said Maine needed the income.

“Maine has never been a rich place,” said Lee, a prominent Democrat who considered running in a primary field against Mills three years ago. “I’m sure she [Mills] do their best not to cut the programs.

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