When the Federal government’s Paycheck Protection Program was put in place Vermont’s businesses used them to keep their doors open and their employees employed. It was a lifeline. Without the loans, many busineses would have been forced to close their doors. The unemployment rate would have jumped much higher than it did. The recession would have deepened and hopes of a recovery delayed.

When the loans were first made available, many businesses were skeptical. Nothing from the government is really free, as advertised; what’s the catch, they asked.

Fast forward a year and the “catch” is that the promise of having the loan be tax free is being rethought. Not by the federal government, but by the states, Vermont being one of them.

On the governor’s desk is a piece of legislation passed by the Legislature to begin the process of allocating federal stimulus money to our schools, and various economic development initiatives. Included in the bill is an unnoticed provision that allows the state to tax PPP loans granted for 2021. Legislators say it’s a “placeholder” provision; they may follow through and tax the loans, or they may not. They’re thinking about it.

If our legislators want to see what the angry face of betrayal looks like, all they have to do is go ahead and tax those loans. All they have to do is to send each business that received a PPP loan a tax bill for money they have already spent, and for a loan the government promised was tax free. No strings attached. Pinky swear.

Why would legislators even consider the idea? Sen. Ann Cummings, D-Washington, chair of the Senate Finance Committee, said some members did not want to see businesses “double-dip” getting benefits they didn’t deserve. They also wanted to avoid a “loss of revenue to the state” which is another way of saying they see a pot of unexpected cash to fund their spending.

To think the businesses that took the PPP money got a benefit they didn’t deserve is a profound misunderstanding of the state’s economic landscape. It’s also wildly inaccurate to allege double dipping. If legislators were to proceed, and deny the deduction for expenses covered by PPP loans [forgiven], it would almost be the same as treating the loans as taxable income. Either way, levying the tax or denying the deductions would increase taxable income beyond what the business would have experienced by not taking the loan.

What legislative wizard thinks that’s defensible?

To see the tax as a way to stuff the state’s coffer with some untapped source of revenue is not only a money grab, but one that counters the intent and the effectiveness of the loan. Whose side are they on?

Vermont is not the only state considering the tax. But almost without exception they are being challenged, the argument being that Congress made its intent clear with the Consolidated Appropriations Act passed in December, 2020. The law, correcting a misperception with the first round of PPP money, stated that not only were the loans forgiven and not taxed as income, but that businesses owners could also deduct businesses expenses made with the loans. Period.

Sen. Patrick Leahy’s office weighed in on the tax issue being considered by the Legislature with the common sense observation: “Congress wanted businesses and individuals to both receive the full benefit of federal support during the pandemic by not taxing PPP loans.” How clear can the intent be?

This is what Vermont’s businesses understood when they took the PPP loans. If they had known the loans would be taxed, or that expenses covered by the loans would not be deductible most would not have taken them. Loans are loans. They have to be paid back, with interest. That’s a completely different business calculation.

Many of our businesses, particularly our smaller ones and those in the hospitality industry, are still in dire straits. As a state the percentage of jobs lost during the pandemic tops all others. The idea that our small businesses are somehow profiting from a loan that, for many, meant the difference between opening and closing, and laying off employees or not, is ridiculous. It’s as tone deaf to their needs as can be imagined.

And, how, exactly, do our legislators think they can get their hands on this new tax revenue? The money has been spent, which was the intended purpose. Nothing was put aside for tax considerations, which means businesses would have to scrounge up money they had not been expected to pay, an exercise that would pose a fresh threat to their businesses. It would also take money out of the economy, also at odds with federal law’s purpose.

What is more important to Vermont: having businesses with their doors open, people employed, creating a taxable economy, or a Legislature trying to generate some extra cash to fuel their spending?

The odds of the Legislature actually moving forward with this proposal is reasonably slim; one would hope. Once it was made public, Gov. Phil Scott made it clear he is unalterably opposed to the idea. Affected businesses have responded. No one has stood up to defend what is clearly indefensible.

It’s frightening to think we must worry about such nonsense.

by Emerson Lynn

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