There may indeed be light at the end of the pandemic tunnel, but for Massachusetts businesses, especially small businesses and restaurants, the economic hit and the financial pain is still very real.
The solution to some of these busnesses’ financial woes remains in the hands of the Legislature right now — but timing is critical. And this is no time for lawmakers to move at their often leisurely pace — a pace slowed by the very pandemic that has spurred the pressing economic crisis.
One proposal would fix a glitch in state tax law that if not remedied will hit small businesses that, after receiving federal funds under the Payroll Protection Program, did what was intended by Congress: They passed those funds along to their workers. Those small businesses now face a state tax liability approaching $150 million — a liability Congress didn’t intend and the Baker administration is perfectly fine not collecting.
But there’s no magic wand that can absolve businesses of that obligation. It requires a legislative fix.
So does a pending rate increase in the state’s unemployment insurance that would punch local business in the financial gut just as many are beginning to recover. Again, this is no small amount of money — the rate hike that would kick in is estimated at 60 percent. The average increase to business per employee would go from $539 to $866, according to an analysis by Associated Industries of Massachusetts.
A bill filed by Governor Charlie Baker, which died at the end of the last legislative session and was refiled this year, would freeze rates and authorize some $7 billion in state borrowing to replenish the trust fund and repay federal loans used to keep it solvent during the pandemic.
The fixes to both tax dilemmas are critical at a time when the business climate is still fragile.
Baker administration officials told a joint hearing of the House and Senate Ways and Means Committees that, without the change in state law, small-business owners (those who are taxed via personal income tax rather than corporate taxes) will be liable for about $150 million in taxes on forgiven federal PPP loans, and between $25 million and $35 million on state grants awarded by the Massachusetts Growth Capital Corporation.
“The businesses in my district have been very thankful, but I don’t think many people know there’s going to be a tax bill down the road,” said House Ways and Means chairman Aaron Michlewitz at that hearing. Michlewitz’s district includes Boston’s North End, home to dozens of restaurants.
“A lot of these people who are getting grants have never gotten a grant before because they’ve never really had to,” Michlewitz said. “I worry that the communication lines — we have to make them strong about what could potentially be coming down the pike.”
Memo to Michlewitz: Stop worrying about “communication lines” and just fix this now, while there’s still time.
Senator Eric Lesser had already filed a bill to do just that. It now has more than 100 House and Senate cosponsors and the support of the Massachusetts Restaurant Association and the Massachusetts Society of CPAs. The latter is urging at least some major signal of agreement during tax filing season — so those businesses could ask for an extension while lawmakers hash things out.
Lesser’s bill could certainly be paired with the adjustment to what otherwise would surely be a job-killing hike in the unemployment tax, due to kick in April 1.
The tax hike adjustment would save businesses about $500 million, but is considerably more complex than Lesser’s bill because it also proposes to assess employers an as-yet-unspecified surcharge to repay that $7 billion in state borrowing.
“The legislature must act quickly both to freeze the 2021 UI rate schedule and put in place a plan to repay federal loans and pay-out benefits over the next several years,” the Massachusetts Taxpayers Foundation wrote in its most recent assessment. “The timeline on the UI rate freeze is self-evident — bills are due on April 1st.”
Lawmakers have certainly given some lip service to the notion that the tax fix is urgent but, like the politicians they are, they also appear inordinately worried about the optics — about seeming too sensitive to the needs of business. The fact is, however, that those PPP loans provided jobs to people who would otherwise not have them. Those unemployment benefits that depleted the UI fund went to their own needy constituents.
This isn’t about doing “favors” for business. This is about keeping those businesses — and with them, those jobs and business owners — going. Any lawmaker who can’t see that needs a refresher course in Economics 101.
Editorials represent the views of the Boston Globe Editorial Board. Follow us on Twitter at @GlobeOpinion.