Business tax cuts led to revenue loss, report finds

By MICHAELA TOWFIGHI

Monitor staff

Published: 08-03-2023 6:54 PM

When Governor Chris Sununu announced he would not seek a fifth term, he told Granite Staters that he left New Hampshire better off than when he was elected. A key piece of that puzzle was cutting more taxes than any administration in state history.

But business tax cuts have not been as beneficial as the governor suggests, according to new research from the New Hampshire Fiscal Policy Institute. Cuts to the business profits tax and business enterprise tax – the state’s two major business taxes – led to an estimated loss of revenue between $469 and $729 million.

Rather than triggering growth as Sununun suggests, it was the overall economy that grew the state’s revenues. The cuts cost the state money, according to the Fiscal Policy Institute’s findings. 

The state’s two business taxes are the largest revenue source for the state, said Phil Sletten, the institute’s research director.

As politicians like Sununu have touted that tax cuts can triggered increased economic activity, data analyzed by Sletten and the Fiscal Policy Institute from 2015 to 2022 tells a different story.

“It’s very unlikely that these rate reductions have led to revenue increases,” said Sletten. “They have likely reduced revenue.”

State business tax revenue did increase by 118% since 2015, but that’s on par with national trends, said Sletten.

These revenue increases are likely driven by an economic rebound from the pandemic and federal corporate tax changes that incentivized businesses to repatriate profits. In fact, New Hampshire’s revenue growth is slightly behind national numbers and neighboring New England states, according to available data.

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“What we’ve seen in our business tax revenues here in New Hampshire is not a unique phenomenon,” said Sletten.

Since 2016, the business profits tax has been trimmed from 8.5% to the current rate of 7.6%. Tax cuts were a major theme of the governor’s 2021 budget address, where he proposed cutting the business enterprise tax from 0.6 to 0.55%.

“Tax cuts for everyone,” he said in the address. “Whether you are a small business just starting out, a family of four looking to enjoy a meal out, or are retired and enjoying life in the Granite State, we’re providing equitable, across-the-board tax relief for the people of our State.”

However, there are more effective solutions to provide relief for people, while stimulating the economy, research shows.

For each additional dollar invested in the Supplemental Nutrition Assistance Program, the economy is boosted by $1.61, according to Moody’s Analytics. Meanwhile, corporate tax reduction led to a 68-cent deficit.

Specific to state funding, the loss in revenue from corporate tax cuts could have funded numerous budget items in New Hampshire, namely funding for mental health services, education property taxes or contributions to the university system, the report suggests.

The state spent $517.5 million on mental health services from 2013 to 2019, according to the Department of Health and Human Services. Revenue lost from these tax cuts could have made up this funding, which came from the state’s General Fund.

These investments would have provided direct aid to the state’s workforce, bolstering the economy, said Sletten.

“The dollars that go to fund either tax breaks or tax reductions for people with lower and moderate incomes… that is a more efficient way to stimulate the economy than reducing taxes for higher income households or for corporations,” he said.

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