Last week’s TAX SUMMIT organized by Representative Susan Almy reaffirmed that New Hampshire’s lack of a general income or sales tax has enhanced our competitive position compared to other states. But the SUMMIT also warned that business taxes are too high and may be hurting our ability to attract high tech jobs to the state.
Unfortunately the TAX SUMMIT focused exclusively on taxes with nary a question raised by the organizers about the other half of the equation -- state spending. This isn't surprising however, given that spending has increased from $9.36 billion to $11.49 over two budgets --- a startling increase of 23%! And this is happening at a time when state spending around the nation has decreased over the last two years.
Nevertheless the SUMMIT was instructive. To her credit, Almy, an income tax supporter, insured that witnesses represented a wide variety of viewpoints including opposition to an income or sales tax.
Naturally several speakers supported adopting a sales or income tax. Jeff McLynch of the Institute for Taxation and Economic Policy argued for an income tax based primarily on the need for additional revenue and equity. Laurel Redden of the Granite State Fair Tax Coalition argued for unspecified new taxes to mitigate rising property taxes. No one likes the property tax and most people believe the fairest tax of all is the tax someone else pays! If our tax system is so unfair – why does NH continually rank at or near the top of nationwide surveys that rank states' livability conditions?
Two of the most compelling witnesses drew clear distinctions between New Hampshire’s tax policy and those of other states. Scott Hodge, President of the Tax Foundation, a non-partisan think tank in Washington, stated that most states garner the majority of their revenue through general income taxes, sales taxes and business income taxes which he termed a “three legged stool.” Without either tax, New Hampshire relies heavily on an 8.5% business profits taxes and a .75% payroll tax paid by employers. Hodge warned that enacting an income tax would be a “huge mistake.” He made the emphatic point that “states that are in the biggest financial trouble are the three legged stool states such as New York, California, Pennsylvania, Illinois, and Connecticut.”
As an example of why tax policy matters, Hodge cited Dell Computer moving 1900 jobs from low-tax Ireland to even lower tax Poland. His point: “if Ireland is vulnerable to capital flight then everyone is.” He warned that New Hampshire should not “mess up a good thing” because we enjoy the fifth lowest combined state and local tax burden in the nation and in the Tax Foundation’s State Business Tax Climate Index we rank 7th best in the nation.
Jonathan Williams of the American Legislative Exchange Council and co-author of the book Rich States, Poor States, said his research indicated that “states with a high and rising tax burden (e.g. California and New York) are more likely to suffer through economic decline, while those with lower and falling tax burdens are more likely to enjoy robust economic growth.” He further said his research showed “high income taxes to be particularly damaging to state competitiveness and growth.” He continued that New Hampshire as one of “nine states with no personal income taxes had 21% job growth compared to 11% job growth in the nine states with the highest income taxes.”
But perhaps the most persuasive testimony of the entire session came from Andy Sanborn, the owner of a restaurant and pub just blocks from the State House. Andy joined a chorus of other witnesses who warned Legislators that despite no general sales or income taxes --- the taxes New Hampshire does levy against businesses are a bitter pill. Andy’s stunning revelation that his business pays 32 separate state and local fees or taxes totaling $164,000 – his third largest expense – was an eye-opener about the heavy financial burden business owners are forced to swallow in NH.
For anyone who simply thinks businesses should just raise their prices, Andy made it clear that there is only so much consumers can or will pay---especially in the current economic climate.
Alex Ray of the Common Man chain of restaurants had the moxie to yank back the curtain on the heightened enforcement actions taken against businesses in New Hampshire. I receive many calls from business owners subject to an overzealous, arcane or senseless tax or labor audit. Ray’s problem: he installed a small Jacuzzi inside a new facility. Then bureaucrats cited his business for not having a sign warning patrons that --- no lifeguard was on duty. If this wasn’t such a self-inflicted example about NH's declining business climate it would be laughable.
Economist Ross Gittell got everyone’s attention when he outlined NH’s poor rankings in the bottom third of indexes measuring what he called the “Innovation Economy” which will be tomorrow’s well paid jobs.
The warnings that most speakers delivered about high taxes on business may already be prophetic. At the end of 2008, only 5 states had average unemployment for the year that was lower than New Hampshire’s. Now, nine months later our unemployment rate has climbed to 7.2% and 13 states actually have a lower jobless rate than NH according to the federal Department of Labor. Let’s not forget that 61 taxes or fees have been raised or newly implemented recently in NH. The rush of new spending and rash of higher taxes may well be eroding our competitive position before our eyes – and the unemployment numbers are the canary in the coal mine.