A front page article in the October 2, 2012 issue of The Eagle Tribune revealed the disagreement within all political parties in New Hampshire concerning casino gambling. The article broaches an even larger issue in the Granite State. How will the state generate enough revenue to protect its citizens, provide quality K-12 schools and affordable higher education, care for the elderly, the disadvantaged and rebuild the state’s infrastructure? Virtually no politician in any party advocates broad-based taxation, income or sales; therefore, increasing revenues within the current tax structure is the only alternative, unless gaming and other revenue enhancing strategies are on the table.
The current legislature in Concord has cut spending markedly in the last biennium: state funding for the University System of New Hampshire by 44%, the State Scholarship Fund has been suspended, funding for Planned Parenthood has ended and the Children In Need of Services program has been severely curtailed, etc.
This legislature has also passed legislation to reduce the Business Profits Tax (BPT) from 8.5 to 8.0%. It also voted to raise income levels that trigger payment as well as increase deductions and credits for both the BPT and the Business Enterprise Tax (BET). The BPT and BET constitute only 18% of the tax bill for business in New Hampshire, but the decreased revenue will be reflected in decreased state spending on child care, healthcare and higher education.
The current legislature believes that lowering taxes will spur economic growth and state revenue; however, according to the New Hampshire Fiscal Policy Institute (NHFPI), the legislative proposals now before the legislature, if enacted, could result in a $100 million reduction in state revenue over the next two years. These reductions would devolve to the local communities; consequently, homeowners will bear the burden again. By the way, New Hampshire is dead last in state aid for universities and community colleges.
New Hampshire is in the middle of the pack nationally relative to its level of business taxation, according to the Council on State Taxation (COST). Also, COST avers that the state has one of the lowest levels of taxation on new investments, surpassed by only six states.
As stated previously, the BPT and BET are a comparatively small part of business tax in New Hampshire; it’s the property tax that comprises the vast majority of business tax, 64%; therefore, any decrease in state revenues will result in increased property taxes for businesses as well. The vast majority of businesses operating in New Hampshire, particularly small businesses, do not reach the income thresholds to require payment. Furthermore, the overwhelming majority of businesses liable for the BPT and BET, 70%, are domiciled outside the state, big box stores and major chains, for example.
Some of the current legislature’s strategies to cut the budget and raise revenues have had a deleterious affect upon state finances. Revenue Administration staffing has been cut 43% by this legislature which significantly reduced the number of auditor’s who ensure tax compliance. The 10 cent tax cut on cigarette taxes to spur revenue growth in tobacco sales backfired, resulting in a $20 million revenue loss. Rooms and Meals tax revenue fell because the Tourism Promotion Program was canceled by the legislature. Giving tax breaks to big box stores or multinational corporations will not increase revenue.
In fact, Such enterprises have no vested interest in New Hampshire and will whisk the additional dollars from tax cuts out of the state to invest elsewhere, at home or in foreign lands. All that matters to them is the bottom line.
The NHFPI states that: Studies have shown that business tax cuts fall far short of paying for themselves. Studies in other states, California for example, have revealed that tax cuts to generate economic activity result in recouping only 15-25% of the initial revenue loss. The level of business taxation within a state is not a major factor relative to business relocation decisions. The important factors are an available pool of workers with the knowledge, skills and abilities to perform the critical functions that business requires, adequate infrastructure and a good quality of life. The Upjohn Institute for Employment Research asserts that, “If state and local government are financed by cutting public services, the result may be lower business activity.”
In light of the above discussion, what can New Hampshire do to attract new employers to the state and expand the business activity that already exists to increase revenue? First, assist small business because it is the backbone of employment in the state, employing 56% of all workers. Small business domiciled in the state does have a vested interest in New Hampshire, since the property tax is the largest portion of their tax burden, so give them tax breaks. They will put the money back into the state.
Second, rebuild the infrastructure of the state, especially the railway system to facilitate getting raw materials in and finished products out. Complete I-93 and improve Routes 2 in the north and 125 in the east. Next, support higher education to develop a capable workforce.
Of course, none of this happens without the $53 million in state revenue each year from a half a billion dollar casino at Rockingham Park.
House District 34