New NH House leadership seeks rollback in business tax rates
Analysis sees state revenues taking four-year, $138 million hit
The incoming leadership of the New Hampshire House is sponsoring a bill that would cut business taxes over four years – with a possible fiscal impact of $138 million – irrespective of how much revenue comes into the state’s coffers during the pandemic.
House Bill 10, whose lead sponsor is incoming House Speaker Sherman Packard, R-Londonderry, would decrease the rate of the business profits tax from the current 7.7% to 7.6% this year and 7.5% in 2022. It would also decrease the business enterprise tax from 0.6% to 0.55% this year and then 0.5% the next.
Packard said the bill is among the Republican leadership’s top priorities, adding “our goal is to lower taxes so we can attract more businesses into New Hampshire.”
The bill would also eliminate language in current law that ties tax increases to decreases in state revenue.
That language was inserted in 2019 as a compromise that would have allowed tax decreases to go forward only if revenues increased by more than 6% and would require taxes to go up if revenue falls by the same amount.
There was concern that the pandemic’s effect on the economy, and state revenues, would trigger a business tax increase, but the revenue shortfall hasn’t been as severe as feared.
However, the hit to state revenues did prevent taxes from going down. This bill would allow them to go forward independent of the state’s fiscal situation.
Wait and see
The Department of Revenue Administrate estimates that the tax cut would result in a $138 million decrease in revenue over the next four fiscal years, based on an analysis using revenues from the 2020 fiscal year.
According to the analysis, just shy of $6 million of that total would be felt this budget year, which ends June 30. There would be a $78.5 million hit to the 2020-21 biannual budget and a $53.7 drop in revenue for 2023.
Packard said he hasn’t examined the DRA’s analysis, but he said the hope is that increased revenues of businesses would offset any revenue loss to the state.
But such revenue estimates give even other sponsors of the bill pause.
“One way of improving the economy is getting more jobs, which will entice more business to come here,” said Rep Norm Majors, R-Plaistow, chair of the House Ways and Means Committee, which would hold hearings on the bill. “The thing that we have to consider is that if the economy doesn’t change, and especially if it gets worse, then we are in deep trouble.”
Majors said he signed on to the bill “because I would like to make it happen, but I will make my final determination after we have a public hearing.”
Major’s predecessor, Rep. Susan Almy, D-Lebanon, said that it would be a mistake to pass a bill without any triggers, especially before April, when most businesses file their annual taxes and the state gets a better idea of what kind of fiscal shape it is in.
“I think this bill is incredibly risky,” she said. “We don’t know what the economy is going to look like after the pandemic. This is the largest tax aside from the property tax. When it goes down we have to cut considerably services already badly cut, and a lot of those services are important to businesses, or to their employees who are important to business.”
The Business and Industry Association of New Hampshire “in general supports lower business taxes, since we have some of the highest rates in the country,” said David Juvet, senior vice president of public policy. On the other hand, the BIA also wants to make sure that the state funds priorities important to business, such as adequate Medicaid reimbursement rates to prevent cost-shifting to the group health insurance market, which businesses generally pay.
“It’s always a balancing act to match revenues and programs,” he said.