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Making NH competitive
Can business tax cuts help the state?

10/15/15
By Ryan Lessard news@hippopress.com



 If New Hampshire’s plan to lower business taxes works, the state could end up with a competitive edge over Massachusetts.

Last month, the Republican-led legislature and Gov. Maggie Hassan resolved their months-long stalemate over the state’s operating budget, which included tax cuts for businesses — something New Hampshire hasn’t seen for 20 years. In fact, business tax rates have remained unchanged in either direction since fiscal year 2002.
 
Competing with Mass.
“This has been part of a comprehensive strategy to lower the cost of doing business in New Hampshire,” Senate Majority Leader Jeb Bradley said.
He said lowering business taxes was an important part of a multipronged effort, but not a silver bullet. 
Bradley pointed to reports by the Tax Foundation, which ranked New Hampshire 48th for its corporate tax rate.
“Having talked to the business leaders around the state that I’ve talked to, I know that the high corporate tax rate is an issue for them,” Bradley said. “When a company, for instance, like BAE, is deciding whether to locate new production in New Hampshire or [elsewhere], all of the business costs ... are a consideration. By making this move, we make ourselves somewhat more competitive.”
Bradley set the final rate for the Business Profits Tax, currently at 8.5 percent, to end at 7.9 percent in order to be lower than Massachusetts’ rate of 8 percent.
“That was always the primary goal,” Bradley said.
 
Will it work?
Jeff McLynch at the New Hampshire Fiscal Policy Institute questions how effective business tax cuts will be at enticing businesses since the biggest tax expense for them are actually property taxes, which make up more than 45 percent of their tax burden.
Economist Dennis Delay with the New Hampshire Center for Public Policy Studies says there aren’t any conclusive, scientific studies that prove lowering corporate tax rates will make New Hampshire more competitive. But Delay says the benefit will go to the larger employers.
“The majority of that tax is paid by larger businesses,” Delay said. “So the benefit of the tax cut is essentially going to go to the large businesses in New Hampshire, not really the small businesses.”
This could have a positive impact on job creation, Delay says, but businesses with a national or international scale are likely to consider many other factors before hiring more people than the tax rate of a single state.
And While the Tax Foundation gave New Hampshire a low score for its corporate taxes, the state scored highly for its whole tax structure. The Tax Foundation listed New Hampshire among the top 10 states (7th place) for overall business tax climate in its latest annual index, which looks at other factors like income and sales taxes. Massachusetts was ranked 24th.
Bradley says that while the tax cuts alone may not make the difference, judging their effectiveness at attracting businesses must be done in tandem with recent and ongoing efforts to reform workers compensation, healthcare and electricity prices.
 
The big if
The tax cuts were included in the final budget that was signed into law, which has a couple differences from the vetoed budget. Essentially, the timetable has been accelerated for the first set of cuts, but the second round for the 2018 to 2019 biennium was made conditional.
“The compromise that they settled on was to create a trigger,” Delay said.
He said if the general fund revenues for the current biennium come in under $4.64 billion, the second round of cuts won’t happen. If the revenue is short of the trigger amount, the rates for the BPT and the BET will remain at 8.2 and .72 respectively. Otherwise, it will lower to 7.9 and .675.
Whether the state is able to reach the threshold is an open question.
Delay thinks the trigger number was optimistic, but Bradley says it’s attainable. To put it in perspective, the revenue projection the legislature agreed upon when they wrote the original budget was $4.609 billion. So Republicans are betting revenues will be about $38 million higher than projected when you factor in the bigger first-round tax cuts, according to Delay. 





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