Lowering business tax rates, a top priority of the Republican-controlled legislature, held a public hearing on February 4th reflecting mixed opinions.
House Bill 10, which is sponsored by the Republican leaders in the House and Senate, would lower the business profits tax rate from its current 7.7 percent to 7.5 percent over the next two years, and the business enterprise tax rate from .6 percent to .5 percent over the same period.
Supporters used the significant growth in business tax revenue from 2016 when lawmakers first lowered the rates until last year when the pandemic lowered revenues, to support their contention lowering the rate would spur business activities in New Hampshire.
But Democrats claimed other factors should also be considered besides only tax rate reductions for the growth in business tax revenues during that period including changes in federal tax laws and growth in national and international economic activity.
One of the bill’s sponsors, Rep. Norman Major, R-Plaistow, told the House Ways and Means Committee, which he chairs, the growth in business taxes between 2011 and 2015 before the rates were lowered was 14.6 percent, while between 2015 and 2019, when they were lowered, growth was 43.7 percent.
The question is what happens when rates drop, he said, that encouraged more economic activity which produced greater revenues.
But both Reps. Susan Almy, D-Lebanon, and Dick Ames, D-Jaffrey, said there were other factors that should be considered, not just rate reductions.
Almy suggested the state’s business taxes track the national growth in domestic products and the stock market and that the state was finally over the great recession as New Hampshire often rebounds slower than the national economy.
Other supporters of reducing the rates said legislators should look beyond just the impact on state revenues and look at the positive impact the rate cuts would have on businesses, which will result in economic growth and job creation.
Greg Moore, New Hampshire director of Americans for Prosperity, a Koch Network organization, said business growth tracks closely to business tax reductions.
In New Hampshire’s case, the reductions have made the state more economically competitive as the business profits tax rate is now below Massachusetts and other states in the region.
“We are now better positioned to compete,” Moore said, “to make sure we add good jobs coming out of the pandemic.”
He noted the last budget included changes to business tax policies which broadened the tax base through reapportionment and conformity with federal tax law which resulted in an additional $42 million in taxes from the business community.
“However, as you broaden the base, it’s important to reduce rates,” he said. “Following the tax law changes in the last legislature, you need to reduce rates to get businesses back to even.”
The Department of Revenue Administration said it did estimates on the impact of the rate reductions over the next four fiscal years, but said the estimates are “static,” which means it uses a base that does not change over time, according to the agency’s Melissa Rollins.
The estimates indicate revenues would be $6 million less for the fiscal year 2021, $29 million less for 2022, $50 million less in 2023, and $54 million less for fiscal 2024.
Andrew Cline, president of the Josiah Bartlett Center for Public Policy, said the DRA’s figures do not reflect changes in business behavior that occur when rates are cut.
“Changes to business behavior does in fact stimulate economic activity,” Cline said, noting the effects are particularly felt by small businesses, which comprise so much of the state’s economy.
He noted that since the 2015 fiscal year, estimates for business income by lawmakers with advice from agencies like the DRA and the Legislative Budget Assistant, have been lower than actual receipts.
In the four years since business rates were lowered, Cline said, business taxes have increased $475.6 million. “That’s a half a billion in new revenue that was not anticipated,” he said.
Rep. Timothy Horrigan, D-Durham, opposed the rate reductions saying they would do nothing but lower revenues which will have to be made up somewhere else.
Business growth relies on a lot more than good tax rates, he said, and includes good government policies, a good workforce, and transportation systems all of which are paid for by government revenues.
Government is also a customer of many businesses, he noted.
The business enterprise tax is largely paid by multi-state and multinational corporations, most located outside New Hampshire.
The business enterprise tax, which taxes payroll, dividends, and capital, is largely paid by smaller businesses and is a credit against the business profits tax.
Committee member Rep. Edith Tucker, D-Randolph, asked the prime sponsor of the bill, House Speaker Sherman Packard, R-Londonderry, if he considered lowering the rate for the business enterprise tax even more.
He said he took over prime sponsorship of the bill after the death of former House Speaker Dick Hinch, who died of COVID-19 one week after he was elected speaker and could not say how the rate reductions were determined.
“My understanding is the BET is primarily on the mom and pop branch of New Hampshire businesses, the group that has really been pained and hurt by the pandemic,” Tucker said. “I was wondering whether we should not be considering even a lower amount for the BET.”
“Any time you want to lower taxes,” Packard said. “you’ll get no argument from me.”
The Ways and Means Committee is expected to work on the bill before making a recommendation.
Garry Rayno may be reached at firstname.lastname@example.org.