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Senate’s Business Tax Changes Will Drain More than $90 Million from Future Budgets

On Thursday, May 28, the Senate Finance Committee approved its version of New Hampshire’s FY 2016-2017 budget, setting the stage for consideration by the full Senate by June 4. While the Committee made some progress in restoring funding for tourism promotion and for programs for the elderly, it stopped short of returning support for higher education, local aid, and other areas critical to the Granite State’s economic future, electing instead to pursue a set of fiscally irresponsible business tax cuts.

Impact of Finance Committee Business Tax Cuts Balloons in Future YearsThe version of the budget approved by the Finance Committee would reduce the rate of the business profits tax (BPT) to 8.3 percent and the rate of the business enterprise tax (BET) to 0.725 percent effective December 31, 2016; taken together, those two changes would reduce business tax revenue by approximately $14 million in FY 2017. The Finance Committee would not stop there, however. Its budget recommendations would continue to reduce the rates of those two taxes until they reached 7.9 percent and 0.675 percent, respectively, on December 31, 2019. The committee would also increase the current cap on the research and development tax credit from $2 million annually to $7 million beginning on July 1, 2017. As a result, the ultimate loss in business tax revenue under the Finance Committee’s version of the budget would amount to roughly $93 million on a biennial basis.

To compensate for the loss of revenue associated with business tax cuts in FY 2017, the Finance Committee has proposed to carry $34 million of an anticipated $45 million FY 2015 surplus into the upcoming FY 2016-2017 biennium. In other words, the Committee intends to offset the revenue loss resulting from the first phase of a permanent reduction in tax revenue with a temporary infusion of funds.

Moreover, in pursuing costly and ineffective business tax cuts, the Committee demonstrates where its true priorities lie. In order to accommodate just the initial impact of the proposed BPT and BET rate reductions, the Committee has left funding for the University and Community College Systems of New Hampshire some $22 million below the aggregate amount proposed by Governor Hassan in February. Such a decision comes even as a new national study finds that support for public higher education in New Hampshire has dropped 27 percent since the start of the Great Recession, the steepest decline in New England and the 12th sharpest among the 50 states. In addition, the Committee has recommended several million dollars in cuts for mental health services over the course of the coming biennium, possibly jeopardizing the legal settlement reached just last year.

NHFPI will produce a more complete analysis of the Committee’s recommendations in the coming days.

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House Fails to Pass State Budget, Process Moves to Senate

6 Apr 2017

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The New Hampshire House, for the first time in recent history, has opted to not pass the State Budget bills, introduced as House Bill 1 and House Bill 2. April 6 was the deadline set by legislative leadership to pass those bills out of the House and move them to the Senate, a day often referred to as “crossover.” The Senate phase of the budget begins after April 6, and the Senate has expressed an intent to move forward with a budget in the Senate Finance Committee. However, with no House Bill 1 or House Bill 2 crossing over, the Senate has to forge an alternative path to debate and amend the budget.