States taxing PPP is bad business


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.

Chris Krug

Contributing columnist

Chris Krug is the publisher of The Center Square. He is the former publisher of the Chicago Pioneer Press newspaper chain, and was vice president for Shaw Suburban Media and a deputy editor at the Denver Post.

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