More than 20 governors have proposed tax relief this year, increasing competition among the states for jobs and talent. New Hampshire and Texas provide a great case study that demonstrates why states cannot afford to ignore burdensome business taxes. Texas’s pro-growth tax policies and Right-to-Work status earned the economic outlook ranking of 11th best in the 2015 Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. By contrast, New Hampshire’s high business taxes and status as a forced union state caused the state to only rank 29th in economic outlook. While Texas increased its competitive edge with pro-growth business tax relief this session, New Hampshire is stuck in political gridlock.
New Hampshire should be commended for not levying a personal income tax or a sales tax, but the state has one of the highest business tax rates in the nation, which negatively impacts the state’s economic competitiveness. The state’s business profit tax (BPT) levies an 8.5 percent tax for businesses that have more than $50,000 in gross receipts. Businesses with an enterprise value tax base (which includes dividends, all interest paid or accrued and compensation paid or accrued) of at least $100,000, or at least $200,000 in gross receipts, are subject to a 0.75 percent business enterprise tax (BET). Both taxes place a heavy economic burden on employers. As Val Zanchuk, president of a local New Hampshire small business explained, “Our high business tax rates, on top of these other high costs, are making New Hampshire a less-than-desired place for business growth or relocation from other areas.”
Seeking to improve New Hampshire’s economic competitiveness, state lawmakers passed a budget that would have provided much needed tax relief for employers. Specifically, provisions in the budget would have reduced the state’s BPT from 8.5 percent to 7.9 percent and the state’s BET from 0.75 percent to 0.675 percent, beginning in 2016. However, New Hampshire Governor Maggie Hassan may have just generated some business for Texas when she vetoed the budget.
While business tax relief in New Hampshire is stalled, Texas state lawmakers reduced their business margins tax by 25 percent. Now employers can retain $2.6 billion during the next two years to expand and create jobs. After hearing about Governor Hassan’s business tax relief veto, Governor Abbott reached out to New Hampshire employers on Twitter:
Meanwhile, New Hampshire’s government is currently funded by a continuing resolution. Governor Hassan’s second budget proposal does reduce the business profit tax from 8.5 percent to 7.9 percent by tax year 2016, and increases the filing threshold for the business enterprise tax. However, her second try at a budget hikes the tax on cigarettes, e-cigarettes, other tobacco products and increases car registration fees. Senate President Chuck Morse explained, “I honestly believe we reduced business taxes because we wanted to grow the economy in the state of New Hampshire. Proposing $100 million in new taxes and revenues is not going to work for the Senate.” New Hampshire lawmakers passed a compromise budget that also contained business tax relief. However, Governor Hassan immediately vetoed the compromise budget, citing her opposition to tax cuts. On September 16, the legislature will convene for a veto override session.
State lawmakers across the country are developing policy solutions to address economic difficulties and budget shortfalls. Hopefully, states like New Hampshire can learn from Texas lawmakers’ bold leadership and reduce economic burdens on job creators.
Kati Siconolfi is Legislative Manager for the American Legislative Exchange Council (ALEC) Center for State Fiscal Reform.