Lower taxes aid NH competitiveness

48th-worst in the nation is not an ‘advantage’

We are fond of claiming our state has a “New Hampshire Advantage” due to lower taxes. But the reality is that advantage only applies to our lack of a sales or income tax. New Hampshire has the 48th worst business tax ranking in the nation, due to our 8.5 percent tax on corporate profits (the business profits tax), plus a tax on payroll and debt paid by businesses (the business enterprise tax). These high taxes are no advantage!

When reductions contained in the recent state budget compromise are fully implemented over four years, the BPT will only be one-tenth of a percent (7.9 percent) below a similar 8 percent tax in Massachusetts.

That’s hardly a radical proposal, and given New Hampshire’s high costs for electricity, health insurance and workers’ compensation, gradually lowering business taxes is critical.

Groups such as the Business and Industry Association, the National Federation of Independent Businesses, the High Tech Council and many business leaders support the modest tax reductions to improve New Hampshire’s competitive disadvantage.

But the governor disagreed. She has long supported higher business taxes, starting with the ill-fated LLC tax, as well as a proposal this year to allow the Department of Revenue Administration to once again easily tax a business owner’s salary at the 8.5 percent BPT rate if DRA deems that salary unreasonable.

She also claimed our modest business tax cuts will create a $90 million hole in budgets several years from now. The agreement included a revenue trigger that must be achieved in order for the second phase of the business tax cuts to occur. In the end, this compromise is reasonable because the revenue trigger is achievable.

Opponents of tax reductions point to Kansas.

Kansas’s tax cuts were huge; New Hampshire’s are modest. The top Kansas income tax rate dropped 24 percent and eliminated the tax on small business owners filing as individuals. New Hampshire’s BET will drop 10 percent over five years and the BPT 7 percent over the same time.

Kansas counted on immediate revenue growth from its tax plan, and so at the same time increased spending. New Hampshire on the other hand has used conservative revenue estimates that produced $40 million of surplus revenue in the budget that just closed and accounted for the projected cost of the tax reduction in the 2016-17 budget. 

Interestingly, even though Kansas had to make some mid-course revenue corrections, the tax cuts have stimulated the Kansas economy. Unemployment has dropped, hourly wages have grown and the Kansas side of Kansas City has experienced far more robust job and wage growth than the Missouri side of Kansas City.

Other states that have reduced taxes have also seen positive results. North Carolina enacted a flat income tax with lower rates and lowered corporate taxes. Revenues are $400 million over projections and 200,000 jobs have been created.

Rhode Island is lowering its corporate tax from 9 percent to 7 percent. That state ended FY 14 with a surplus of $68 million and has a surplus of $100 million so far in FY 15.

Ohio has lowered income taxes by 10 percent and reduced business taxes over the past few years, and its Rainy Day Fund has grown by $500 million. At the same time, the unemployment rate dropped from 7.5 percent in 2013 to 5 percent today.

Compare these states to Connecticut, which recently raised business taxes. Major employers like Aetna and GE have threatened to leave the state.

Forty-eighth worst in the nation is not where we want to be if we want a growing economy that attracts young workers interested in tomorrow’s jobs. To leave New Hampshire employers with today’s competitive tax disadvantage harms their ability to provide jobs with good benefits to New Hampshire’s hard working families. 

Jeb Bradley, R-Wolfeboro, is majority leader of the New Hampshire Senate.