Getting What You Want But Not What You Need
Business taxes are about one-quarter of NH state government revenues and an even higher percentage when you take out sources such as the statewide property tax which is largely an accounting fiction that really does nothing to support state services. That is a higher percentage than any state with the exception of some states that get oil, gas and mineral extraction revenues.
When business taxes are that important to a state’s fiscal health it better make sure that it takes care of its businesses and its business climate because if and when they go south (or south and west just as more people have) it becomes very difficult for the state to produce a budget. The chart below shows how NH’s “own source” general and education fund revenue from the nine largest sources of revenue (exclusive of the statewide property tax) have grown comparatively since 2003. I think the chart shows how important trends in business tax revenues are to overall revenue trends in the state. The bad news is that revenues from the business profits and business enterprise tax are still more than 20 percent below peak. The good news is that they are growing.
The chart also says a few other things to me. First, a strong and dynamic business climate is the best fiscal policy for the state. Second, if you are going to cut business taxes you had better be certain that it is a good way produce a strong and dynamic economy because if not, the fiscal health of the state will suffer. Third (and related), if revenues rise in response to cuts in business taxes great, it will be evidence of a stronger economy and healthier state finances, but if revenues fall you better be sure that the service and spending reductions that result don’t affect those things that most contribute to a strong and dynamic economy because economic growth (and thus revenues) will be at risk for falling further. All businesses want lower taxes and it that is the quickest and easiest way for policymakers to demonstrate how much they love businesses. But businesses also need and want a lot of other things to prosper and, like lowering taxes, they aren’t shy about asking for them. Unfortunately, in a state so dependent on business tax revenues businesses getting what they want can sometimes make it more difficult to get what they need.
NH lawmakers, like lawmakers in most other states, want prosperity and opportunity for residents . Most also recognize that a strong and dynamic economy is the way to assure that. So unless you are big financial institution, a big oil company, or just about any business or industry that is prefaced by “big,” it’s a pretty good time to be in business because almost everyone wants to show you some love, they just can’t agree on how to demonstrate it. Right now a lot of ideology and little evidence is being brought to bear on the question of “what policies are most helpful in producing a strong and dynamic NH economy.” That makes it a lot harder to see that we all have a common interest in a strong economy and even more difficult to agree on what to do about it.