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My Turn: State lacks means to afford business tax cuts

Last modified: 5/29/2015 12:12:19 AM
Listen long enough in Concord and you’ll hear it.

In discussions of New Hampshire’s budget, whether in committee rooms or in floor debates, not much time will pass before someone utters the refrain, “We must live within our means.” Legally, that’s undeniably true. New Hampshire, like every other state in the country, save our neighbor Vermont, has a balanced budget requirement. At the end of each biennium, revenues must, at minimum, match expenditures. On a more innate level, the notion has a certain appeal as well. No one wants to be thought extravagant, especially in a state where thrift is among the highest of virtues.

Yet, in fiscal terms, New Hampshire already lives well within its means. Those means, as measured by personal income in the state, are comparatively high. Last year, personal income in New Hampshire was roughly $53,000 per capita – or ninth highest in the nation. However, comparatively little of those means are devoted to funding public services. In 2012, the latest year for which such data are available, state and local taxes in New Hampshire equaled just 8.2 percent of personal income, the third lowest level among the 50 states.

What’s more, state revenues are still considerably below where they were prior to the national recession. At the close of fiscal year 2014, general and education fund revenue amounted to $2.17 billion. After adjusting for inflation, that sum is approximately 12 percent, or about $290 million less than what the state collected from the same sources in 2008. New Hampshire’s twin business taxes – the business profits tax and the business enterprise tax – follow the same trend, albeit to a greater degree. Between fiscal years 2008 and 2014, the combination of those two taxes, after adjusting for inflation, has dropped almost 20 percent, or just over $136 million. While some of this decline is due to long-standing flaws in New Hampshire’s tax system, the numerous business tax cuts New Hampshire has implemented since 2011 have also likely contributed.

As a result, it is particularly troubling that many of the policy makers most likely to fall back on admonitions of frugality are actively seeking to reduce the means available to the state to finance education, health care and other critical priorities. More specifically, the Senate Finance Committee recently inserted into its version of the 2016-2017 budget a set of changes to cut taxes for businesses operating in New Hampshire. Those changes would not only make the existing research and development tax credit more generous, but more significantly, would lower the rates of the BPT and BET over time. In dollar terms, those changes would reduce business tax revenue by roughly $14 million in fiscal year 2017 and, once they are fully implemented several years from now, by approximately $93 million on a biennial basis. Such revenue reductions would come even as the version of the budget approved by the Senate Finance Committee neglects investments in public higher education and fails to reverse sharp declines in local aid, two areas critical to the Granite State’s economic future.

Of course, while such back-loaded business tax cuts would have immediate and negative ramifications for New Hampshire’s ability to provide the public services central to the state’s high quality of life, they are also wholly at odds with the idea that we must live within our means. Phasing in business tax reductions over time or delaying their initial implementation until some later date simply puts off – for another day and onto future legislatures – the difficult choices and tough trade-offs that would have to be made to accommodate the revenue losses they would produce. Even in the short run, the Senate Finance Committee papers over the impact that business tax cuts will have on the fiscal year 2016-17 budget by carrying forward a temporary surplus that the state is expected to realize this year.

If anything, passing business tax cuts now but dealing with their consequences later is an admission that New Hampshire lacks the means to afford them.

(Jeff McLynch is executive director of the New Hampshire Fiscal Policy Institute, based in Concord.)


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