Republican senators are seeking to lower two major state business taxes in a move they say will boost economic growth, but which opponents argue will threaten the state’s budget.
The Senate Ways and Means Committee met yesterday for a hearing on the pair of bills that aim to gradually reduce both the state’s business profits tax and the business enterprise tax over a period of several years.
The BET and the BPT are two of the highest-grossing taxes in the state, and in 2014 they brought in $219.5 million and $330.1 million, respectively.
Republicans say New Hampshire’s corporate tax rate is among the highest in the region, and any tax relief will motivate businesses to stay in state and make the state’s economic climate more competitive. But Democrats raise concerns that lowering business tax rates would deliver a big blow to state revenues and the budget.
A bill sponsored by Senate Majority Leader Jeb Bradley, a Wolfeboro Republican, proposes to lower the state BPT rate by half a percent over four years, bringing it from the current 8.5 percent rate to 8 percent by 2018. Roughly 1 percent of New Hampshire business tax filers pay the BPT, a levy on taxable business profits, according to the Department of Revenue Administration.
“Lowering the business profits tax – because we are so uncompetitive – has to be a priority for New Hampshire,” said Bradley, whose bill is backed by a widespread coalition of lawmakers including Republican House Majority Leader Jack Flanagan and Senate President Chuck Morse – signs that the legislation has a strong chance of passing both the House and Senate.
Republican Sen. Andy Sanborn is proposing similar legislation to reduce the BET, a 0.75 percent tax on interest, dividends and compensation on any business or nonprofit above a certain size, excluding 501(c)3 charitable organizations. Sanborn proposes to decrease the tax from the current 0.75 percent rate to 0.675 percent over a three-year period.
The Department of Revenue Administration forecasts the bills, if passed, will lead to a drop in state revenue. The BPT change would mean a $10 million decrease in revenues for fiscal years 2016 and 2017, and then a $20 million decrease in 2018 and 2019. Similarly, the BET change would lead to a drop in state revenue of roughly $7.6 million in 2017, $15.1 million in 2018 and $22.8 million in 2018.
A common concern raised by the bill’s opponents in the discussion yesterday was what type of financial impact the tax changes would have on state revenues and services.
Sen. Dan Feltes, a Concord Democrat on the Ways and Means Committee, questioned how New Hampshire would make up the forecasted revenue losses.
Sanborn and Bradley both denied a large shortfall, saying that the tax cuts would lead to an expansion of business in the state and more economic growth.
“This tax cut will not cost us any money,” Sanborn said.
Still, a few speakers at the hearing questioned the bills’ financial viability.
The forecasted revenue losses prompted by the bills would lead to deep spending cuts, said Jeff McLynch of the progressive New Hampshire Fiscal Policy Institute. “Given the fiscal challenges now before New Hampshire, tax cuts of this magnitude would endanger the public services on which Granite State residents and business rely,” he said.
The Business Industry Association, for its part, voiced support for the legislation.
“We have reached a point where businesses have in many cases stopped expanding in the state, choosing to expand in other lower-cost areas of the country,” said the BIA’s David Juvet at the hearing.
The debate over business taxes is not new, and will likely be a sticking point in the coming budget negotiations. Gov. Maggie Hassan has consistently pointed to underperforming business tax revenue as one of the biggest budget concerns. Republicans, for their part, say revenue isn’t the problem, but rather overspending.
It is not certain whether Hassan would veto the business tax bills if they came to her desk, but her spokesman yesterday signaled the governor is wary of the legislation.
“We continue to see significant shortfalls in year-to-date revenues from business and interest and dividends taxes, and Governor Hassan believes that these two bills would create a significant hole in future budgets with a resulting significant cost to our people, businesses and economy,” spokesman William Hinkle said in a statement. “Because of the fiscal impact of these tax breaks, the Governor believes that they should be examined with the same scrutiny as any new spending would be.”
