Budget offer aims to remove hurdle on taxing paycheck loans

PORTLAND, Maine (AP) - Gov. Janet Mills offered a compromise Tuesday that would match the federal government’s tax relief for more than 99% of Maine businesses that received forgivable loans through the federal Paycheck Protection Program. But Republicans still weren’t onboard.

Republicans pushed back when Mills, a Democrat, said the administration claimed it couldn’t afford the $100 million cost of fully mirroring tax cuts on the forgivable loans, creating a stumbling block to enactment of her administration’s two-year state budget.

Mills said Tuesday that she was reversing her position by matching the federal tax breaks on smaller businesses with the greatest needs.

“We recognize the incredible hardship these businesses have endured and, as we have throughout this pandemic, we want to ease their burdens and allow them to stay open and keep people employed,” she said.

The compromise still didn’t win the backing of Republicans on the Taxation Committee, where all five GOP members supported full tax conformity while seven Democrats supported the compromise and one Democrat supported the administration’s original plan.

Senate President Troy Jackson, a Democrat, praised the governor’s compromise for helping small businesses without “bailing out major corporate law firms on the backs of Maine people.”

“Our job isn’t to rubber-stamp everything that Washington, D.C., sends our way. It’s about passing policies and reforms that work for Maine,” Jackson said in a statement.

But House Republican Leader Kathleen Dillingham said the governor’s proposal would leave more than 250 Maine businesses without the same tax advantage as those receiving smaller loans.

“It is not fair to provide relief to some employers, while leaving out others,” she said.

Under the governor’s plan, the state would mirror the federal benefit for PPP loans of $1 million or less by opting against treating them as taxable income while allowing deductions on associated expenses

For businesses receiving larger sums, the state would match the full benefit for $1 million while taxing the remainder.

The tax relief proposal, if approved, would reduce state revenues by $82 million instead of $100 million.

The administration would cover the cost by tapping into money it had planned to add to the rainy day fund, drawing on funds it had proposed rolling over and using other unspent funds.

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This story has been corrected to show that the compromise was offered Tuesday, not Thursday.