Modest business tax relief should not factor into governor's veto
Growth in profits and enterprise value will shrink or eliminate the gap entirely
New Hampshire's House and Senate are poised to pass a new, two-year $11.35 billion state budget. It funds many initiatives important to businesses, like our community colleges and university system, which are working to graduate STEM-educated/workplace ready young people; workforce training; energy efficiency programs; roads and bridges; travel and tourism promotion; social services; and many other programs and functions of government. Included in the budget are two modest, but important provisions that provide much-needed relief for New Hampshire businesses.
The provisions to which I refer are reductions to New Hampshire's business taxes, the business profits tax (BPT, which is the state's corporate income tax) and the business enterprise tax (BET, which is primarily a payroll tax). Taken together, these two revenue sources are by far the largest source of operating funds for the state, more than $1.1 billion, according to official House and Senate revenue estimates. That's right. Over the next two years, employers like me will pay the state of New Hampshire more than a billion dollars in tax revenue.
If New Hampshire's business tax rates were in line with other states around the country, this probably wouldn't be such a big issue. However, the fact is, New Hampshire's business tax rates are not competitive with other states. According to non-partisan organizations like the Tax Foundation, New Hampshire's BPT rate of 8.5 percent is among the highest corporate income tax rates in the country. To make matters worse, there is no other tax in the country like the BET. At a rate of .75 percent of payroll, it is unique to New Hampshire.
Leaders in the New Hampshire House and Senate have recognized that these high business tax rates are a drag on our economy and put employers here at a competitive disadvantage, relative to businesses located in other states with lower tax rates. With high electricity costs (the highest in the contiguous U.S.), high healthcare and workers' compensation insurance costs, and high labor costs, New Hampshire is already a difficult environment for employers to maintain and grow a successful business. Our high business tax rates, on top of these other high costs, are making New Hampshire a less-than-desired place for business growth or relocation from other areas.
The plan legislative budget writers came up with to lower business taxes is very modest: a decrease in the BPT from 8.5 percent to 7.9 percent and a decrease in the BET from .75 percent to .675 percent, phased in over a three-year period beginning in 2016.
This measured, phased-in approach is deliberate. Like everyone else, businesses benefit from state-funded programs. Good roads and bridges, an educated and healthy workforce, and a clean, safe environment are important to everyone. Making drastic and severe cuts could affect all of these important state priorities and more. No responsible business leader wants to see that happen. The reality is, New Hampshire's own Department of Revenue estimates that lowering these onerous business taxes will reduce state revenues by $23.2 million over the next two fiscal years. In an $11.35 billion budget (with more than $1.1 billion coming directly from business taxes), these modest reductions in business tax rates and correspondingly modest projected tax impact on state revenues is simply "a drop in the bucket."
That's why many business leaders were surprised to hear Gov. Maggie Hassan call these modest tax reductions "unpaid-for tax cuts to big corporations, mostly headquartered out-of-state, that will create a more than $90 million hole in the budget and put corporate special interest ahead of New Hampshire's families…" The modest reductions in the BET will primarily benefit small businesses, like mine, throughout the state. Reductions in the BPT will benefit companies that provide tens of thousands of well-paying, important jobs regardless of their headquarter's location (BAE Systems, Fidelity Investments, Liberty Mutual Insurance, Velcro, Lindt & Sprungli, Hypertherm, Sig Sauer, Highliner Foods and many others). And the budget "hole" in the next budget is not $90 million as the governor states, but $23.2 million. Interestingly, the governor’s gap assumes no growth in profits or enterprise value. This is not realistic. Growth in profits and enterprise value will shrink or eliminate the gap entirely.
No state budget will ever meet everyone's expectations, including the governor's. However, the modest tax reductions included in this budget should not factor into the governor's "veto-or-not-to-veto" decision. Tax relief to New Hampshire employers, small and large, is long overdue.
Val Zanchuk is president of Graphicast, a precision metal parts maker located in Jaffrey. He is chair-elect of the board of directors of the Business and Industry Association, New Hampshire's statewide chamber of commerce and leading business advocate.