Editorial: Cut to business taxes will only hurt business in NH

Last modified: 1/26/2015 10:04:08 PM
Haven’t we already heard this story about the wondrous Republican perpetual motion machine? In this latest version, it’s the promise that cutting two of the state’s major sources of revenue, the business profits tax and business enterprise tax, will increase revenue. There’s no reason to believe that’s true or, for that matter, any reason to believe that reducing business taxes will attract and retain businesses. There is, however, good reason to believe that making up for the lost revenue will require even deeper cuts to New Hampshire’s already frugal budget. Those cuts will not just hurt the needy, but make the state less, rather than more, attractive to young, well-educated workers and the businesses seeking to hire them.

That’s why lawmakers should roundly reject Senate Bills 1 and 2.

In October, after four years of research, testimony and deliberation, the legislatively created New Hampshire Commission to Study Business Taxes issued a report that repeatedly stated that the state’s 8.5 percent business profits tax and 0.725 percent business enterprise tax did not materially affect the state’s ability to compete for businesses. The 12-member commission also found “no basis for concluding that any effect of attracting new businesses or business expansion as a result of a rate reduction would generate additional tax revenue sufficient to compensate for the revenue loss. . . .” Curiously, Sen. Jeb Bradley, one of the sponsors of both tax cut bills, was a member of the commission and now argues in favor of the cuts for the very reasons the commission deemed flawed.

Assuming, as we do, that the tax cuts will shrink state revenue, they could backfire. Businesses need good roads and bridges and other infrastructure. To attract employees, they need communities with good schools, parks and other amenities. To the extent lower tax revenue leads to a reduction in public services and state investments in infrastructure and education it will harm the business climate.

Business taxes are well down the list of a company’s concerns when locating and in New Hampshire, despite the nominally high rate of the BPT, the overall business tax rate isn’t all that bad. The Tax Foundation ranked New Hampshire seventh in attractiveness to business. What does hurt business is the state’s high property taxes. That’s the single largest tax most businesses pay – equal to 45 cents on the tax dollar, according to one study, and 52 cents on the tax dollar in another. If communities have to offset state spending cuts with property tax increases, businesses lose.

In testimony opposing SB1 and SB2, Jeffrey McLynch, executive director of the New Hampshire Fiscal Policy Institute, pointed out that a loss to the state treasury of $78 million amounts to more than the combined budget of the Department of Resources and Economic Development and Environmental Services and nearly equals the state’s support for its community college system. It’s not a sum that can be offset with a little belt-tightening here and there.

New Hampshire’s economy has been growing more slowly than that of its neighbors, but that’s not because business taxes are too high. Instead, it’s because of the areas where New Hampshire fared poorly against other states in a 2013 economic analysis published by the New Hampshire Center for Public Policy Studies. New Hampshire students had the highest average debt in the land, a low percentage of young people and family health care premiums that were higher in only one other state. The Granite State placed near the bottom in capital investment, housing costs, electricity prices, personal debt, percent of deficient bridges and roads and state spending on natural resources.

Cut business taxes and the state will become less, not more, business competitive.

(The last sentence of an earlier version of this editorial reversed the words “more” and “less.”)

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