NH Dems’ new budget plan includes possible change in business tax cuts

Proposal would tie rate reductions to revenue targets

Business tax cuts will go forward under a new state budget proposal from Democrats in the New Hampshire Legislature, but only if the economy does better than expected. And it’s doing worse.

Democratic leaders offered the budget proposal – House Bill 3 and its companion bill, HB 4 — on Tuesday afternoon. The proposal was presented the day before the House and Senate are expected to vote on Gov. Chris Sununu’s veto of the budget originally passed by the Legislature. It is widely believed that Democrats do not have enough votes – two-thirds of those present and voting – to override that veto.

On the other hand, that’s the same amount needed to introduce any new legislation at this late date. The governor has not agreed to this latest budget plan, so its fate is uncertain at deadline.

One major reason cited by Sununu in vetoing the budget was that it repealed business tax cuts, including one that went into effect in January 2019, and another that’s due to go into effect in January 2021. Under the new budget proposal, those tax cuts would only be repealed if the amount of revenue raised exceeds $2.725 billion.

That is what the amount of revenue projected for fiscal year 2021, according to Phil Sletten, policy analyst for the New Hampshire Fiscal Policy Institute, but it’s more than $2.687 billion projected for fiscal 2020.

Senate Majority Leader Dan Feltes, D-Concord, said the proposal “is a major give to the governor, and he should take it and we can be done with the budget this year.

However, business tax revenue projections have been going down, according to the latest estimates from the Department of Revenue Administration. If revenues fall, the tax cuts would be suspended, but that would result in a $33 million revenue boost the first budget year, which may mean the tax cuts could go into effect later.

Other changes

The newly proposed budget also makes several other concessions.

It puts off the 3.1% increase in the Medicaid reimbursement to healthcare providers for a half a year. That should save some $40 million.

It removes $3.5 million in startup funding for a paid family and medical leave insurance program. Lawmakers had already removed the 0.5% payroll deduction to pay for it. Sununu was strongly against mandatory paid leave, calling the deduction an “income tax.”

It also removes a $1 million “sunny day fund,” which would have been used to finance initiatives in key growth industries in the state, if the rainy day fund reaches a certain level.

It removes another $1 million from the tourism development fund.

There were also major changes on school funding that the governor has reportedly agreed to.

Tax cuts

But tax cuts have been the major sticking point.

HB 2, the trailer bill to the vetoed budget, would repeal two tax cuts, one that already went into effect in January and the other that would go into effect in 2021.

The vetoed provision would repeal the second round, starting in January 2021, that would decrease the business profits tax to 7.5% and the business enterprise tax to 0.5%, but that won’t affect most of the budget cycle, which starts on July 1 2019 and ends June 30, 2021.

It is that first retroactive repeal that Sununu has been adamant about in some of his comments about the budget. In his statement on a budget compromise, for instance, he only mentions the first round, which he calls a tax increase, because the rates are already down and they would go back up. (Democrats argue that it is more of a tax freeze, since businesses won’t have to pay those taxes until April next year – though most companies have made estimated payments already.)

Sununu has been silent on the second round of tax cuts. Several insiders have speculated that Sununu might be willing to let that be repealed, especially since that decision could be reversed by lawmakers after the next election. Requests for comment from the governor on this point were not returned by deadline.

The Business and Industry Association supports both tax cuts and therefore opposes their repeal. Like Sununu, the BIA is particularly concerned about reversing tax cuts that already went into effect because says it sends the wrong message to businesses and those considering locating here.

But the BIA hasn’t, and would not probably not take a position on the budget itself, said David Juvet, the organization’s senior vice president of policy.

“We never have, because every budget has things we like and things that we don’t, and I am assuming it will be the same way with this,” Juvet said.

Another business organization, the New Hampshire chapter of the National Federation of Independent Business, is particularly concerned about repealing the second round of cuts.

In 2016, the rate of the BPT – which is mostly paid by larger businesses – was 8.5%, so the cut to 7.9% – even before the latest rate in dispute in the budget – was 60% of the way to the 2021 target of 7.5%, said Bruce Berke, NFIB chapter president. But during that same period, the rate of the BET – paid by smaller businesses – went from 0.75% to 0.675%, a third of its way to 0.5%.

Likewise, after the first round of tax cuts in the vetoed budget, the BPT cuts would have reached 80% of their goal while the BET would have achieved 60%.

“We were not getting as much of the benefit of the tax decrease,” said Berke. “That is why we are hoping that it remains in the final package.”

Correction: An earlier version of this article incorrectly stated the newly proposed budget would save $40 billion in regard to the delay of Medicaid reimbursement to healthcare providers. The actual figure is $40 million.

Correction: The amount of revenue projected for fiscal year 2021 is more than $2.687 billion projected for fiscal 2020, not less, as previously stated.

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