For the New Hampshire 2018-2019 budget to meet our obligations, survive the business tax cuts and prevent steep property tax increases our economy needs to grow at a whopping 7% per year for the next 10 years.
The consensus among economists is that we’ll see a 1.5 to 2.0% growth rate per year for the next two years. Last year after the first small cut our business tax revenue dropped by $2 million even as the economy grew.
The tax cuts will force future legislatures to make deeper spending cuts that will weaken service to citizens and businesses alike, and force municipalities, school districts and counties to cover the gaps.
The lost revenue created by the business tax cuts will result in continued downshifting of the state responsibilities to local taxpayers. While there is road improvement money for communities this year, this is one-time money only and is not expected to continue which means increased pressure on property tax payers.
Business taxes are NH’s largest source of revenue, and we should be very concerned about the cuts that are proposed in this budget. In its report to the House Ways and Means Committee the NH Department of Revenue Administration (DRA) said that 3%of the business entities that file tax returns pay about 70% of the business tax revenues received by the state each year and that over 50% of the business tax revenues each year are paid by multinational corporations. Seventy-seven percent of the business profits revenues are paid by 800 business entities and 31% of the revenues paid by just 45 companies.
Of the businesses that are either “active” or in “good standing” 70% pay no business taxes at all.
Combining the proposed tax cuts with a Federal Reserve predicted economic growth rate of 2.1% and an estimated 2% inflation rate, NH could experience an annual loss of $101 million by the year 2022.
NH already ranks 7th lowest in the nation for total business tax assessment and companies doing business in NH have continually said that job training programs and expanding the work force are the most effective way to grow current and new businesses here. While business has stated that a quality work force is a higher priority than changing the tax code, this year the legislature eliminated a federally funded jobs training program that employers would prefer.
A loss of revenue, elimination of federal funds for jobs training programs, one-time support to local communities and flat funding of higher education are the real headlines out of this budget. This means future state spending cuts and increase in local property taxes.
We’ve been through this before. When state spending was slashed in the Bill O’Brien led legislature in 2011 property taxes rose throughout NH because, among other things, the state decided it wouldn’t support pension funds for local police and teachers, so local property tax payers picked up the difference.
None of this may come to pass if we realize an unheard of 7% annual economic growth rate. On paper, the budget is balanced through 2019, but I don’t believe it’s fiscally sound. Here’s hoping that NH’s economy grows at such a staggering rate that we don’t have to worry about future revenue losses and putting property owners on the hook for the difference.