Editorial: Candidates’ tax-cut plans wrongheaded

Last modified: Tuesday, September 02, 2014
George H.W. Bush called the notion that cutting taxes would increase economic activity, thus creating jobs and increasing federal revenue, “vodoo economics.”

So-called supply-side economics didn’t pan out for President Ronald Reagan, who increased taxes. As a theory it’s largely been discredited, but its something-for-nothing allure remains so strong that the idea refuses to die.

Three decades later, supply-side notions such as those that underlie the tax plans of New Hampshire Republican gubernatorial candidates Andrew Hemingway and Walt Havenstein should more rightly be called zombie economics. They are the walking dead, yet still capable of doing harm.

Havenstein, if elected, would push to lower the state’s Business Profits Tax from 8.5 percent to 7.4 percent, something that he magically believes would create 25,000 new jobs. He offers no evidence to support that belief, and history suggests it’s misplaced.

Analyses by the national Economic Policy Institute, the Center on Budget and Policy Priorities and the New Hampshire Fiscal Policy Institute, among many others, show that cutting corporate taxes has little or no effect on a business’s decision to relocate, expand or hire more workers.

Hemingway’s far more radical plan calls for eliminating the BPT and the Medicaid Enhancement Tax on hospitals while reducing the Interest and Dividends Tax from 5 percent to 2.3 percent.

In theory, he would offset the lost revenue from those tax cuts by increasing the Business Enterprise Tax, which is akin to a payroll tax, from 0.75 percent to 2 percent while extending it to cover nonprofit institutions and city and town payrolls. An amazing notion: Tax government to pay for government. Why didn’t anyone think of that before?

Taxing nonprofits and society gets a bit less of what those nonprofits do, such as provide health care and education, care for the poor and support the arts. That isn’t going to create a more liveable state. Taxing government payroll and society will get fewer services or higher property taxes in a state that already has some of the highest property tax rates in the nation.

According to research cited by the Fiscal Policy Institute, business taxes in New Hampshire are already lower than in most states. And in every state, business taxes make up only a small component of business expenses and thus have limited influence on business decision-making. Other factors – an educated workforce, good schools, quality of life, state of the infrastructure, access to markets and the like – are far more important.

What the tax cuts proposed by both candidates would do is reduce the state’s ability to pay for the things that make New Hampshire attractive to employers and the young families the state wants to attract, among them good schools, safe roads, well-kept parks, good public services, a clean and beautiful environment, and affordable higher education.

The states of Kansas and Ohio, at the behest of Republican governors, fell for the supply-side fool’s gold and cut taxes deeply in 2012.

Ohio didn’t gain jobs, it lost them. The cuts in Kansas created an enormous deficit, starved schools and public services of funding, and kept the state from coming out of the recession the way neighboring states did. The number of jobs in Kansas increased by 3.5 percent between 2011 and 2014, but the growth rate was less than half that of neighboring states that didn’t cut taxes.

The tax cuts proposed by Hemingway and Havenstein would take the state backward, not forward.