Revenue estimates throw cold water on newly proposed business tax cuts

DRA says bill’s further reductions in BPT, BET would cost $106 million

At first, it seemed surprising that advocates at the House Ways and Means Committee hearing on Wednesday backed away from pushing for another round of business tax reductions until 2020. But then the state Department of Revenue Administration gave its estimate of what those proposed tax cuts could cost the state: $106 million, and that was on top of the $31 million reduction expected from cuts already set to go into effect in January.

All told, the DRA said, revenue in fiscal year 2021 would be 17 percent lower than now. Push even some of that shortfall up a few years, and that would make the budget – which the House couldn’t manage to pass last month – even more difficult to balance.

The DRA’s assumptions are static, and don’t take into account business growth that the tax cuts might generate. On the other hand, the DRA also doesn’t take into account a number of other possible business tax cuts recently passed by lawmakers: an increase in the research and development tax credit cap; an increase in the Section 179 capital equipment expense deduction; a tenfold increase in the net operating loss carryforward; and extension to 10 years in the business enterprise tax carryforward.

The proposed tax cut in Senate Bill 2 would reduce the rate of the business profits tax – already due to fall from 8.2 to 7.9 percent in January – to 7.5 percent by 2020. It would further lower the BET rate, scheduled to go down from 0.72 to 0.675 percent in January, to 0.5 percent.

More cautious

As originally introduced, and passed by the Senate Ways and Means Committee, SB 2 would have been implemented gradually, and thus would have impacted this year’s budget. A Senate Finance Committee amendment put it all off until after this year’s budget biennium, and that’s the version that the bill’s prime sponsor, Sen. Andy Sanborn, R-Bedford, presented in to the House Ways and Means Committee on Wednesday.

Sanborn said he personally favored the original bill, maintaining that the business growth that the tax cuts would generate could offset the revenue loss.

“It’s like Ronald Reagan said – tax cuts spur economic development,” Sanborn testified.

Several committee members were more cautious however, noting that much of the state’s current revenue growth took place occurred before the tax cuts went into effect, and they may have been the result of a general improvement in the economy.

When asked if he were recommending a more immediate tax cut, he said, “I am not telling the House what it should or should not do,” Sanborn said.

Similarly, Bruce Berke, New Hampshire director of the National Federation of Independent Business, strongly supported the bill, especially the BET cut, which benefits smaller businesses. The business community has been in a “slumber,” he argued, but the tax cuts have been a “catalyst” to help awaken it.

But when asked if he recommended accelerating the tax cuts, he said, “I would rather not answer that question.”

Rep. Michael Cahill, D-Newmarket, however, strongly opposed committing to tax cuts, even if they were to take place in the future.

“Rather than giving away the store, we should be fixing up the store,” he said. “Business groups want education (spending) and tax cuts, and I don’t know if you could do both,” he said.