Where has New Hampshire’s competitive edge gone?

Businesses know they must invest and innovate to survive, but not state government

In the past, New Hampshire recovered from recessions faster than the rest of New England. Since the crash of 2008, economic growth in New Hampshire has lagged behind Massachusetts and Vermont.

In the 1980s and 1990s, New Hampshire was much more successful in attracting new businesses and young, skilled workers.

What has changed?

Young families look for good public schools and affordable college education. New Hampshire falls short on both counts.

We never solved the education-funding problem in the late 1990s. The Constitution requires the state to pay for an adequate education, but the state pays only about $3,500 per child, while the average cost of educating that child is over $14,000. As a result, less affluent school districts are chronically underfunded, spending 30 percent less than the state average.

The University of New Hampshire has nearly the highest in-state tuition rate in the nation, and UNH graduates have the highest rate of student loan debt.

If funding for our state university system had kept pace with inflation and population growth since 1988, state funding would be 43 percent higher.

Businesses and families value good infrastructure; New Hampshire gets bad grades here, too. Many state roads are paved less often than once in a dozen years. The pavement on more than 1,600 miles of state roads is rated as “poor.”

Any discussion of New Hampshire’s competitiveness inevitably turns to taxes. According to the Tax Foundation, New Hampshire has the seventh-lowest state and local tax burden. That low tax burden is not evenly shared across the economy.

We favor shopping by being one of five states without a general retail sales tax. Retail sales in New Hampshire are about 25 percent higher per capita than in our neighboring states.

We disfavor business. Our 8.5 percent business profits tax is nearly the highest corporate income tax in America, making us less attractive to large corporations.

Our business enterprise tax is a 0.75 percent tax on payroll, which virtually no other state collects.

Our property taxes on businesses are nearly the highest in the nation, making New Hampshire less attractive to businesses that require a big investment in a physical plant.

We favor the wealthy by having no estate tax and no income tax.

We disfavor home ownership with the second–highest property taxes in the country. Since 1999, the total property tax bill in New Hampshire has increased over 50 percent after adjusting for inflation.

High property taxes hurt the two groups who have the least income: young families starting out and retirees. With the amount due each month for property tax often equal to a mortgage payment, young families prefer states where the American dream of home ownership is more affordable. Retirees often move for the same reason.

As a result, New Hampshire loses people who have time and talents to share.

This is the New Hampshire paradox. We are a low-tax state, but not if you are a business or a homeowner. We are a low-spending state — so low that we neglect education and infrastructure, and imperil our future.

We have tax policies that favor the rich – and also tend to drive away businesses and homeowners.

What has changed since the 1980s? We have much higher property taxes and business taxes.

What’s the same? We remain a haven for the rich.

Businesses know they must invest and innovate to survive. New Hampshire keeps making tax and spending choices that cut investment and that make our state uncompetitive where it matters — young families and businesses. We are well on our way to becoming the next Kodak or Nokia, while our leaders seem to be blind to the trend, and to the consequences of their decisions.

Mark Fernald, the 2002 Democratic nominee for governor, can be reached at mark@markfernald.com.