Would BPT, BET reductions help the state’s economy?

N.H. Senate panel weighs business tax cuts
N.H. Sen. Jeb Bradley|!!| R-Wolfeboro.

A “modest,” gradual reduction in business taxes would be revenue-neutral and help the New Hampshire economy. Or not.

Those were the major points of contention, Tuesday morning, at a Senate Ways and Means Committee hearing on two bills: one that would cut the rate on the Business Profits Tax and another that would reduce the Business Enterprise Tax.

Labeled Senate Bill 1 and Senate Bill 2, the measures are clearly the Republican Party’s opening salvo in its effort to reduce taxes on businesses.

Companies complain – according to Greg Moore, a lobbyist for the New Hampshire chapter of the conservative organization Americans for Prosperity – that the high corporate tax rate makes the state “a great place to live and a lousy place to do business.”

The tax cuts would start small at first. The BPT – currently at 8.5 percent – would go down a quarter of a percent starting on Jan. 1 2016, and drop another quarter of a point in 2018. The BET, currently at 0.75 percent, would go down to 0.72 percent in 2016, 0.7 percent in 2017 and 0.675 in 2018.

But opponents were worried about what the loss of revenue would mean for services and the state’s infrastructure.

According to the bills’ fiscal notes, the BPT cut would eventually cost the state about $10 million a year, and the BET cut more than double that.

With the current fiscal crunch, the “deep spending cuts” to fund the tax cuts would make it “nearly impossible” to meet the state’s needs, said Jeff McLynch, executive director of the New Hampshire Fiscal Policy Institute. He called the bills an “ineffective economic strategy,”

But supporters questioned whether the impact would be severe.

Sen. Jeb Bradley, R-Wolfeboro, sponsor of SB1, said that if the economy grew as it has during the last two years, businesses would be making more profits and hiring more people, resulting in more tax revenue.

David Juvet, a lobbyist with the Business and Industry Association of New Hampshire – which strongly supports the tax cuts – noted that it would be a mistake to simply add the separate revenue estimates of both bills, since they are closely tied together and a cut in one tax would result in more revenue from the other.

And even if they did eventually come out to a $35 million-a-year revenue loss, argued Sen. Andy Sanborn, R-Bedford, sponsor of the BET bill, that’s still 6/10 of one percent of a $5.5 billion budget.

“Still think it is impossible,” to make up that deficit, he asked McLynch.

“It’s extremely difficult,” McLynch replied, noting a precarious state surplus of $44,000 and a stabilization fund of $9 million was not sufficient for an expectant shortfall in the Medicaid enhancement tax of $30 million or more.

Besides, McLynch argued, a recent study showed that lowering business taxes doesn’t really help the economy that much. For most businesses, energy, health care and labor costs outweigh taxes, and the tax businesses actually pay the most – the property tax – is likely to increase to make up for the cuts in aid to municipalities that would occur should state revenues be cut.

Juvet countered that “the business tax rate may not rise to the top, but that’s not to say it’s not important. It takes a long time to get energy and health prices under control, so anything that can create an immediate impact … might mitigate” the other costs businesses are experiencing.

Democrats, who have proposed closing business tax “loopholes” offered a different approach. Only 1 percent of businesses pay the BPT, said Sen. Lou D'Allesandro, D-Manchester, so spreading that out to 2 percent might raise enough money to make it possible to consider cutting the tax rate.

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