A proposed reduction to New Hampshire’s Business Enterprise Tax (BET) would have reduced state revenue by more than $26 million per year this budget cycle while providing tax savings too small for most businesses to expand hiring, according to a new analysis from the New Hampshire Fiscal Policy Institute. The proposal, which would lower the BET rate from 0.55 percent to 0.50 percent, comes amid recent budget pressures, continued uncertainty about long-term revenue sustainability, and the State recently having to withdraw from the Rainy Day Fund due to lower revenues than anticipated.
Some lawmakers have argued that further reducing the BET could encourage business activity and ultimately increase state revenues. To better understand the impacts of a BET decrease, NHFPI’s analysis examines whether past BET rate reductions produced those outcomes and seeks insights into the likely fiscal and economic effects of the newly proposed rate change. The study analyzes historical BET revenue trends, recent tax filing data, and official state revenue projections, modeling how revenues and business tax liabilities would have changed if the lower rate had been in effect during the current State Budget biennium, including interactions with the Business Profits Tax (BPT).
“The evidence shows that lowering the Business Enterprise Tax rate would reduce revenue for public services, while the vast majority of businesses would see savings that are too small to significantly change hiring or investment decisions,” said Phil Sletten, Research Director at the New Hampshire Fiscal Policy Institute and the author of the study.
Key findings from Business Enterprise Tax Rate?Decreases?Have Lowered Revenue with Limited Economic Benefit?include:
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More than $26 million per year in lost revenue: If the proposed BET rate reduction had been fully in effect during the current State Budget biennium, annual BET revenue would likely have been more than $26 million lower.
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Limited hiring impact: The average business paying BET would have saved about $565 per year. After excluding the largest firms (those with more than $44 million in taxable payroll or other compensation), businesses with BET liability would save about $336 per year on average, an amount unlikely to influence employment decisions. Nearly half of BET filers do not actually owe BET, suggesting no benefit at all.
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Significant tradeoffs for public services: The annual revenue loss is equivalent to more than half of the state’s road and bridge aid to municipalities, or more than half the annual budgets of the State Police, the New Hampshire Veterans Home, or the Bureau of Children’s Behavioral Health.
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Past rate cuts show similar patterns: Because the BET is based largely on wages paid by businesses, BET revenue would normally rise as wages grow. After past rate cuts, however, BET revenue fell and has not caught back up to that wage-based trend, indicating economic growth did not offset the revenue losses.
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No clear relationship between BET rates and job growth: Historical data show no consistent statistical relationship between BET rates and job growth in New Hampshire over the last four decades. Prior studies, including New Hampshire’s own Commission to Study Business Taxes, have found little evidence that business tax cuts generate enough new economic activity to replace lost revenue.
“Tax policy choices involve tradeoffs,” Sletten said. “This analysis highlights that a relatively small tax decrease for most businesses can translate into substantial revenue reductions at the state level. To balance the State Budget, policymakers must weigh those forgone revenues against funding needs for infrastructure, public safety, health care, and education.”
To read the full study, visit nhfpi.org.