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Last Year's Tax Changes Drive a Hole in the New State Budget

Tax cuts adopted last year leave state budget writers with a big problem.

As the Legislature begins to meet in earnest in Concord, there is no lack of issues waiting to be addressed in the coming months. 

One particular challenge policymakers have to contend with as they craft the FY 2014-2015 budget is the lasting legacy of tax cuts enacted during the previous legislative session. All told, the tax cuts enacted in 2011 and 2012 will reduce tax collections by close to $90 million over the coming biennium.   

To put that sum in perspective, initial estimates suggest that the state may see only about $110 million in revenue growth in the coming budget cycle – at the same time that universities, community colleges, hospitals, and hard-working families across the state continue to suffer from more than $400 million in budget cuts imposed during the last budget cycle.

Importantly, several of these recent tax cuts have yet to take effect. Several others are only just now in the process of being implemented. For instance, one change to the state’s Business Enterprise Tax will not become effective until July 2014. 

This means that state businesses have not yet seen any change in what they owe the state – and the legislature still has the option of suspending or repealing some of these changes. 

In weighing this option, it’s worth knowing that there’s little or no evidence that cutting business taxes benefits the state’s economy. Numerous studies suggest that business tax reductions are far less effective than investments in education and infrastructure in promoting economic growth. 

What’s more, business taxes in New Hampshire are already comparatively low. A report released last year found that the total state and local taxes paid by businesses in New Hampshire amounted to 4.6 percent of private sector gross state product, substantially below the national mark of 5.0 percent.

Consequently, legislators should consider repealing or suspending these sorts of changes in tax law until state tax collections have fully rebounded from the economic downturn.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Ray Guarino January 11, 2013 at 08:56 PM
According to the state constitution, this is correct. I believe, that a few years ago there was a law suit brought on by the trucking association because the state tried using state highway dollars for a study associated with a commuter rail station.
steve forte January 11, 2013 at 11:00 PM
Sounds like a no brainer. Raise the fuel tax. No rerason folks not using the roads should be paying for them.
Survivor. January 14, 2013 at 03:15 PM
This years Democrats are blowing the budget already. Via spending too much.
Phil Wilson January 14, 2013 at 05:01 PM
"the state may see only about $110 million in revenue growth in the coming budget" So with over 100 million extra dollars, the state still cannot live within its means? Must be we elected a Democrat controlled government again.
Mark January 18, 2013 at 01:27 PM
When your washing machine breaks, you can't go to your boss and say that you need "additional revenue" to fix it. You take the money from a different part of your budget, and get it fixed. Again, not rocket science.

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