A Democratic proposal to reverse two years of business tax cuts became a partisan fixation Wednesday morning as Democrats and Republicans squared off over how best to attract businesses and fund state services.
At a hearing before the House Ways and Means Committee, chairwoman Susan Almy submitted legislation that would bring the business profits tax back to 8.5 percent – the level before a cascade of cuts set in the prior biennium.
After a series of scheduled reductions, the tax is now resting at 7.7 percent, but is scheduled to drop to 7.5 percent in 2021 if revenue targets are met. Almy wants to reverse that trend, arguing that the cuts were unnecessary for business growth in the state and would deplete state resources down the line.
“Tax cuts should not happen before we identify how we will pay for them,” she said. “Fiscal responsibility means having the ability to think for the future.”
But the bill faces a long fight. Republicans, including Gov. Chris Sununu, quickly painted the plan as a reckless change in course that would disrupt companies’ plans.
“I’m sorry, so the Democratic head of Ways and Means wants to increase taxes?” Sununu said at a press conference. He added: “The Democrats don’t seem to have any ingenuity other than to raise taxes.”
To Almy, the cuts in taxes are just one piece of a recent history of weakened state support. With courts and social services underfunded, she argued, the increase was necessary to bring in the additional revenue.
In her testimony, the Lebanon representative pointed to nonprofits she said had “gone under” because of diminishing funds from the state. “This kind of thing has been going on a lot,” she said.
And she said the programs not shouldered by the state had been pushed onto towns in the form of increased property taxes, which she said encouraged a downward spiral.
“I’m trying to give an impression of the crisis that we have been developing over years,” Almy said, comparing the state to a frog boiling in water.
Republicans took pains to highlight what they say has been a spike in business activity since the cuts were passed, pointing to recent surges in business tax revenues despite the lowered rate.
“Republican leadership proved a great model in the last session that when you cut taxes, when you provide regulatory relief, when you put businesses and employees first, the economy can thrive,” Sununu said.
Advocates for low taxes said the cuts had helped New Hampshire better compete against neighboring states. Prior to the cuts, Granite State, which does not have an income tax, had been singled out as unfriendly to businesses, Ray Chadwick of the Granite State Taxpayers said at the hearing.
Hiking the rates could undo the advantage the state had accrued, he said.
“If you want less of something you can tax it more. It makes it less attractive for people to continue doing what you’re taxing,” Chadwick said.
Still, Almy said the 8.5 percent rate – itself a product of a tax reduction under Democratic Gov. Maggie Hassan – achieved the proper balance for businesses and residents.
The tax reductions has led the state has cut services that the businesses also rely on, such as workforce development, Almy argued. Raising the taxes could provide those incentives that would balance out the tax increases, she said.
Though Almy is seeking an increase to the business profits tax, she said she has no aims to stop the scheduled decreases to the business enterprise tax, which typically falls on smaller, start-up businesses. The business enterprise tax, she argued, has been excessively increased in recent years, resulting in an imbalance between two taxes that are meant to complement each other.
But not all in the Democratic Party have embraced Almy’s approach. In the Senate, Democrat Lou D’Allesandro has submitted a bill would freeze the rate where it is – keeping the tax cuts in place so far but eliminating the ones scheduled for the future.
That more modest proposal has the support of the Senate Democratic caucus.
House Democratic leadership, meanwhile, has yet to present a position. Speaking Wednesday, House Majority Leader Doug Ley said the majority office is waiting to see what happens to Almy’s bill in committee before setting out guidance to the whole caucus.
“Whether or not it’d be an entire rollback all the way back, or a freeze on the future ones scheduled, that still has to be determined,” Ley said. “But certainly the question of how to handle those tax cuts and the impact on the state’s revenues is an active topic of discussion.”
Sununu, for his part, all but vowed a veto on any tax cut reversals Wednesday, declaring them “not on my agenda.” And he said legislative advances made with one-off payments from the state’s surplus were a direct result of the lowered rates.
“We’re able to make investments at the state level because we allowed the economy to move forward in a very positive way,” Sununu said. “The tax cuts were a big part of that.”
(Ethan DeWitt can be reached at edewitt@cmonitor.com, 369-3307, or on Twitter at @edewittNH.)