Lowering business taxes will boost NH's economy
March 3, 2015
By Sen. Chuck Morse
I'm proud that New Hampshire is the only state without a broadbased sales or income tax. That distinction has long been the cornerstone of our state’s reputation as a business friendly destination and the economic engine of the Northeast. But we’ve coasted on that reputation for too long and allowed other states to surpass us as we levy more and more taxes on the backs of business owners.
Recently, the Tax Foundation ranked New Hampshire 48th in the nation for corprate tax competitiveness. Our overall tax climate is still among the best in the country, but for businesses looking to move or expand, New Hampshire has ceased to be a friendly place.
We’ve taken steps in recent years to improve our business climate. We have increased the threshold for the business enterprise tax, removed a job-destroying tax on trust companies, and established the research and development tax credit. But we haven’t touched our business tax rates, which are growing ever more burdensome as our neighbors make their states more competitive. Nationally, 27 states have lowered taxes over the last two years. New Hampshire is getting left behind.
Since 2001, New Hampshire businesses have paid a crushing 8.5 percent business profits tax. Now that Rhode Island is lowering its corporate tax rate, we would be left with the highest corporate tax rate in New England. This is a punishing tax on business success, and it hits nearly everyone in the private sector. Charlie Arlinghaus of the Josiah Bartlett Center calculates that the 15,000 business that pay the tax each year employ more than 95 percent of our state’s private-sector workers.
In 2001, the Legislature also increased the business enterprise tax to 0.75 percent. This tax hits even small businesses that don’t turn a profit, since it taxes business activity. This is triple the rate at which the BET was introduced in the 1990s, and it makes it harder for innovative startups to get off the ground.
Senate Republicans have put forward a plan to restore our ability to attract and retain businesses. We have introduced a pair of bills to gradually lower the BPT and the BET over the next three budget cycles.
Ramping down the BPT to 7.9 percent and lowering the BET by 10 percent will provide real tax relief to businesses employing 95 percent of New Hampshire’s private-sector workforce. And that will make it easier for our businesses to grow and create new jobs. It will also send a strong signal nationally and internationally that the Granite State is again open for business.
Tax reform is an important priority for Senate Republicans in the next budget, and we’ve taken care to implement tax reform in a fiscally responsible manner. That’s why our plan prudently phases in tax rate cuts over three budgets.
In the next budget, carving back the BPT and the BET would reduce business tax revenues $15 million a year from the current base of $568 million. That’s about a quarter of 1 percent of our total state budget.
But that tax base is not going to stay flat. As our economy grows, the projected increase in business tax revenues would more than offset the rate reduction. That means budget writers would have at least as much revenue to pay for state spending as this year.
This extremely conservative outlook doesn’t even take into account the boost to the New Hampshire economy that cutting business taxes would generate.
Our current budget spends more than $10.5 billion over two years. We can clearly afford $15 million a year to improve New Hampshire’s business tax climate. Budgets are about priorities, and improving New Hampshire’s stagnant economy will be a top priority as we craft the next state budget.
I urge my colleagues to join me in supporting these vital business tax cuts when we debate them on the Senate floor this Thursday.
Sen. Chuck Morse, R-Salem, is president of the New Hampshire Senate.