by Chris Krug
The biggest gap in understanding how business truly works exists between two distinct groups of people: Those who have made a payroll and those who haven’t.
Anyone who has run a business – small or large – would only be glad to tell you that it is equal parts fulfilling and terrifying.
Why? Private business owners are innovating, creating value and creating an opportunity for themselves and their employees to thrive and live a great life.
But the business owner also has to walk a tightrope upon which they balance their own financial security and the solvency of those who are on their team – people who walk that rope behind them – while the realities of competing against all manner of factors that conspire to try to knock the lot of them off of that wire. Daily.
So when we elect people to positions of responsibility in government, the No. 1 fundamental question that you may want to begin to ask is this: Do you understand the difference between cutting a paycheck and receiving one?
Now, as we grind our way through what we all pray are the final throes of COVID-19, governors from a handful of questionably managed states are trying to figure out how they can claw back and make the payrolls that their taxpayers fund. It’s a very different ballgame than running a private business, played by a very different set of rules that can be changed seemingly whenever government chooses to call for a do-over.
The latest tax target – in particular for governors who didn’t reduce the cost of government while it shut down the private sector during COVID-19 – is the Payroll Protection Program. Specifically, there is a movement afoot in some states to tax the business owners who tapped the PPP. Some governors want to and treat this federal lifeline as business income. And what do they do with business income? Well, they tax it – and at rates that few people who have never made a payroll would have difficulty believing.
Now let’s be clear about one thing: The PPP was not income. It wasn’t a revenue infusion designed to benefit the private businesses and their financial health. No, it was designed to keep businesses afloat and, more important, to ensure that businesses wouldn’t close and then send their employees out into the ranks of the unemployed. As you may recall, the United States went from the best economy it had seen in decades in March to 14.7% unemployment in April 2020, when state governments forced businesses to shut down.
This misguided notion now to go back to these battered companies and retroactively tax PPP dollars as business income is afoot in New Jersey, and burbling in Illinois, Virginia and Wisconsin.
Coincidentally, each of these states is overseen by Democratic governors and all share one approach to COVID-19 response: While they imposed significant restrictions on private business in 2020 and into 2021, they did not pare back the cost of state government. That magic formula now has each of them scratching for ways to balance their current budgets.
Had we all participated in a parlor game where we imagined what government might do in the wake of a global pandemic coming to our shores prior to it occurring, we could have likely predicted that limitations would be placed on our liberties.
We probably could have guessed that executive orders would shutter public places and limited our access to public interaction. We might have predicted that schools would be closed and public services diminished if not closed for prolonged periods.
However, I strongly doubt that we’d have any notion that state governments would have been so willfully hellbent on shutting down small businesses. I don’t think any of us could have foreseen that – certainly not to the extent that these orders impeded the private sector’s ability to operate.
Consequently, more than 100,000 private U.S. businesses closed by the end of September, according to Forbes.
Those businesses that survived did so with the help of PPP loans, which from the very start were designed to be instructive grants that would dictate businesses kept paying their employees regardless of their operational circumstances for them to be forgiven. And among all of the bad legislation and executive orders that came from our states, it was reasonably good federal salve.
The idea that some states are now thinking about taxing the companies who accepted PPP loans speaks to the unimaginable – and unimaginative – depths to which government thinking can sink.
The PPP loans were designed – from the beginning – to be grants. They did not create cash surpluses for businesses. And to pretend otherwise now would be nothing short of criminal.
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Elsewhere in America…
NEW YORK
The ongoing debate over whether the Cuomo administration is responsible for the deaths of nursing home residents during the early months of the pandemic saw a new twist as a state Supreme Court justice ordered the release of state data on nursing home deaths. At issue is the state’s policy of reporting only those deaths that took place in nursing homes from COVID-19. Residents who were transported to a hospital and died there were not included in the nursing home totals, leading to accusations that the state was trying to conceal the scope of deaths to avert blame over a policy in the spring of 2020 that required nursing homes to readmit coronavirus-positive patients.
PENNSYLVANIA
Pennsylvania Gov. Tom Wolf’s longstanding desire to rein in the state’s charter schools gained new attention this week thanks to his unveiling of a budget plan that would dramatically cut their funding. The second-term Democrat is proposing a $2 billion increase in overall school funding, but he also touted an overhaul of the formula the state uses to apportion funding for each school in the state. School choice advocates say such a move, especially during a pandemic that has increased charter enrollment by 20,000, runs contrary to what Pennsylvania parents increasingly want for their children’s education.
MAINE
An ordinance that had businesses in Maine’s leading city uncertain as to how much they should be paying their workers was upheld this week by a Superior Court justice, but its implementation was delayed until next year. Portland voters in the fall of 2020 approved a referendum that included a provision for “hazard pay” for essential workers during a state of emergency. Because Maine is currently in a state of emergency, the legal dispute that ensued made it unclear to businesses whether they should start operating under a de facto $18 an hour minimum wage immediately or next year. Justice Thomas Warren ruled that businesses needed more time to adjust, meaning the hazard pay clause won’t be enforced until Jan. 1, 2022.
TEXAS
During his state of the state address last week, Texas Gov. Greg Abbott pledged to balance the state’s budget without raising taxes. Abbott also laid out his legislative priorities for the session, including expanding broadband access statewide, ensuring police departments are funded, protecting the unborn, and protecting First and Second Amendment rights.
NEW MEXICO
At least eight members of New Mexico Gov. Michelle Lujan Grisham’s staff received pay raises ranging from $7,500 to $18,000 during the ongoing coronavirus pandemic. The biggest raise, $18,000, went to Tripp Stelnicki, the governor’s communications director. Six other staffers received pay hikes of $10,000 and one received a $7,500 raise. “It’s beyond pathetic that just as President Joe Biden launches an all-out assault on New Mexico’s energy workers, apparently our governor feels her personal staff deserves a raise funded by those same workers,” Larry Behrens, western states director for Power the Future, told The Center Square.
CALIFORNIA
The campaign to recall Gov. Gavin Newsom is approaching the threshold of signatures it needs to gather to place the matter before voters. Orrin Heatlie, chairman of the campaign, said Thursday that more than 1.4 million signatures have been collected so far, just shy of the 1,495,709 valid signatures needed to call a special recall election. Recall organizers have until March 17 to collect signatures.
OHIO
In an effort to curb what he calls fraud and abuse, an Ohio state senator has introduced a bill that would make sweeping changes to several of the state’s public assistance programs. Sen. Tim Schaffer, R-Lancaster, testified last week in front of the Ohio Senate Government Oversight and Reform Committee as the sponsor of Senate Bill 17, saying the bill closes loopholes to prevent fraud and waste.
INDIANA
A bill before the Indiana legislature would dramatically expand the state’s school voucher program, opening it up to most middle and upper-middle-class Indiana families who could use the voucher to pay for tuition at a private school. In addition to expanding the school voucher program, HB 1005 would also create an Education Scholarship Account program for special education, military and foster families.
KENTUCKY
A bill that seeks to protect historical horse racing in Kentucky took its first step in Frankfort when it was passed by a state Senate committee. In fiscal year 2020, nearly $2.3 billion was wagered at the parlors. That led to the tracks receiving nearly $189 million in revenue. Since then, two new facilities have opened. While the bill enjoys bipartisan support, there is significant opposition to the legislation. In some cases, that exists where the machines are available.
VIRGINIA
Legislation that would mandate employers provide paid sick leave for essential workers passed the Virginia House of Delegates, but drew criticism from members of the business community who are worried about additional restrictions as businesses are still struggling amid the COVID-19 pandemic. Members of the business community are cautioning against the bill, saying it could negatively impact small businesses that do not have the resources to provide this leave amid substantial revenue losses during the pandemic.
WEST VIRGINIA
West Virginia residents are now able to register for access to medical marijuana, but the state still needs to partner with a testing lab before the product can be put on the market. Although the legislation to legalize medical marijuana was signed by Gov. Jim Justice nearly four years ago, the product is still not available and the state has not yet partnered with any testing labs, which is needed before patients can access it. The state has issued licenses for growers, processors and dispensaries.
GEORGIA
The Georgia Senate passed a bill Monday that would allow the state to more closely examine the more than $9 billion it offers businesses in tax incentives. The Tax Credit Return on Investment Act of 2021 allows the chairpersons of the House Ways and Means Committee and the Senate Finance Committee to each request up to five economic analyses each year of existing or proposed Georgia laws that deal with tax exemptions, credits, deferrals, rebates, abatements or preferential rates. The Georgia Office of Planning and Budget would conduct each analysis.
NORTH CAROLINA
The North Carolina Legislature approved a new COVID-19 relief plan last week that allocates more than $2 billion in state spending. The money will be used on reopening schools, COVID-19 vaccine distribution and rental assistance. The bill also extends the deadline for North Carolina parents to apply for one-time grants to help defray costs of remote learning.
SOUTH CAROLINA
A new education spending database published by the Palmetto Promise Institute and Acuitas Economics shows South Carolina has increased local, state and federal per pupil spending by nearly 19% since 2001. Per student funding averaged $12,287 in 2001, and it has jumped to the present-day average of $14,595 per pupil.
TENNESSEE
The Tennessee Supreme Court has agreed to hear arguments surrounding the constitutionality of Tennessee’s school-choice pilot program, which would provide state-funded scholarships to low-income families to use for educational purposes, including attending a private school. Entities in Shelby County and Davidson County sued the state over the program, arguing it was unconstitutional because it applies only to the two counties.
LOUISIANA
The nonprofit Public Affairs Research Council of Louisiana released a paper that concluded removing tax exemptions and restrictions from the Louisiana Constitution to state law could give lawmakers the opportunity to simplify the state’s tax system. The group recommended removing constitutional caps on income tax rates and brackets and the income tax deduction for federal income taxes paid from the constitution to statute. Doing so would give lawmakers flexibility in eliminating or changing those exemptions.
MICHIGAN
When police officers make mistakes, taxpayers are on the hook. Freedom of Information Act requests conducted by The Center Square revealed Michigan cities shelled out enormous financial settlements between 2018 and 2020. Detroit, for example, paid $13.6 million to settle 73 instances of constitutional violations as well as another $3.2 million to settle other miscellaneous cases. One settlement in Detroit cost nearly $5.3 million.
ILLINOIS
Federal prosecutors have charged a former Republican state senator, who also ran as a third-party candidate for governor in 2018, with money laundering, tax evasion and fraudulent use of campaign funds. Sam McCann represented the 49th Senate district and then the 50th Senate district for the state of Illinois up until he ran for governor in 2018 under a political party he called the Conservative Party. U.S. Attorney John Milisher filed charges in federal court in Springfield on Wednesday. Prosecutors allege McCann used campaign funds to buy personal vehicles, pay personal debts and make mortgage payments. They also allege McCann used campaign funds to pay himself, according to the indictment.
Students as young as those in kindergarten in Illinois public schools would get some form of sexual education under a proposal supported by Planned Parenthood. The Pro-Family Alliance said it goes too far. If passed into law, the Responsible Education for Adolescent and Children’s Health, or REACH Act, would start sex ed in kindergarten through second grade with lessons on personal safety and respecting others. Grades 3-5 would cover anatomy, sexual orientation, gender identity and gender expression. Grades 6-12 would build upon that and include benefits of abstinence, birth control and prevention of STDs.
WISCONSIN
Gov. Tony Evers unpleasantly surprised the Wisconsin business community last week by announcing his plan to tax the state’s approximately 90,000 businesses an estimated $450 million on federal PPP loans received during the COVID-19 pandemic. The U.S. Congress clarified the PPP loans are free of federal income taxes.
MINNESOTA
President Joe Biden’s executive order to shut down the Keystone EX pipeline will have serious negative repercussions, according to economist Gary Wolfram in an interview with The Center Square. Among the costs to the public will be the loss of 1,000 union jobs, as well as environmental hazards of moving oil shipments from a pipeline to more costly and dangerous and far less efficient rail and highway transportation. For example, an 84-car train will carry 60,000 barrels of oil, Wolfram said. So it would take 1,000 train cars to haul the same amount of oil that the pipeline would deliver in one day.
ARIZONA
At the request of Arizona Secretary of State Katie Hobbs, two organizations analyzed the state’s election audit process and found room for improvement. The Brennan Center for Justice and the R Street Institute released a report Monday that said Arizona’s election laws need changes. They stressed the state’s 2020 general election was held safely and securely, but a political party can quash a post-election audit if it refuses to participate. In place of the state’s mandatory hand-count audits, the organizations suggested risk-limiting audits that they say call a “check on the election outcome.”
COLORADO
A free speech advocacy group sent a letter to the University of Colorado Boulder warning that its response to visiting professor John Eastman’s speech at a Trump rally last month violates the First Amendment. Eastman, who is a visiting scholar in conservative thought and policy at the university’s Benson Center for the Study of Western Civilization, spoke at a Trump rally on Jan. 6, prior to the U.S. Capitol riot that took place later that day, but he was not at the riot. After a public outcry against the professor, the university canceled his scheduled classes and prohibited him from doing outreach as part of the center. The Foundation for Individual Rights in Education (FIRE) told Chancellor Philip DiStefano that the public university’s response to Eastman “exceeds the boundaries permitted to it by the First Amendment and cannot be justified by the rationales proffered by the university.”
WASHINGTON
A bill in the Washington Legislature seeks to increase taxes on the state’s top earners. Under the legislation, top earners would see a 1% tax applied to paper assets such as cash, bonds, pensions and stocks in excess of $1 billion. Such a tax would be the first of its kind in the country and would have violators pay a 5% penalty for every month a return is overdue. Revenue from the legislation would go straight into the state’s general fund, then be put towards tax credits for working families and businesses, said bill sponsor Rep. Noel Frame, D-Seattle. Opponents of the bill testified that it will chase big businesses out of state and hurt Washington’s economic competitiveness. “Nobody in their right mind is going to pay a billion dollars a year or more for the privilege of living in Washington state,” said Jim King, an entrepreneur representing the Independent Business Association.
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Chris Krug is the publisher of The Center Square. Executive Editor Dan McCaleb, Managing Editors Delphine Luneau and Jason Schaumburg, and regional editors J.D. Davidson, Derek Draplin, Cole Lauterbach, Brett Rowland, and Bruce Walker contributed to the column.
