There has been tremendous pressure by special interests groups at the State House to dramatically increase state spending during this budget cycle. Despite a low tax environment that makes New Hampshire unique, these spenders want to add additional revenue sources, such as an income or sales tax, in order to create the bigger, more intrusive government they desire.
However, these same spenders forget that, historically, the best proven way to grow our economy is through responsible tax cuts. Ironically, one of the most demonized components of the newly passed state budget by liberals is the use of tax reduction to produce greater state revenue and job creation. What critics fail to appreciate is that pro-growth tax cuts can invigorate our recovering state economy.
Former Governor Mel Thomson is a great example of how tax cuts can be a valuable tool to create jobs and increase revenue. According to the 1970 census, during the Thomson administration, tax cuts brought more than 100,000 tax refugees to New Hampshire, along with scores of corporations and small businesses who fled the high tax, high regulation climate of our neighboring states. Despite these lower tax rates, we witnessed an expansion of revenue that helped New Hampshire soar while the rest of the nation continued to crawl along economically during the 1970s.
Our budget takes a similar tax approach to Governor Thomson. Despite facing a nearly billion dollar deficit entering the current budgetary cycle, this legislature enacted ten targeted tax and fee cuts that will help create jobs and increase revenue. Included in these cuts was a repeal of the gambling winnings tax, which actually diminished lottery revenue. Also cut were weights and measures fees, repeal of the rooms and meals operator fee, reduction of the pet store licensing fee, reduction of the land and condo license fees, and reduction of the marriage license fee. These cuts are intended to enhance our cross border competitive advantage and increase revenue sources, both large and small.
According to the Tax Foundation, New Hampshire has the dubious distinction of having the highest business tax rate nationally. That’s why Republicans reduced employers’ taxes through reforms to reasonable compensation standards, reforming the net operating loss carryover of the Business Profits Tax (BPT), and extending the carry forward period for Business Enterprise Tax credit against the BPT. These three tax cuts will lead to small business growth.
Liberals also love to attack the ten cent decrease in the tobacco tax. While everyone fully appreciates that tobacco is unhealthy, it is legal, and the reality is that we rely on this revenue source and should focus on all areas where we can enhance our competitive tax advantage.
The head of the New England Convenience Store Association reports tobacco sales at the state’s 828 outlets make up nearly 50 percent of all sales. In recent years, tobacco tax revenue dropped significantly as Democratic legislatures and Gov. Lynch approved raising the tax four times in six years. As a result, we reached the tipping point of losing our cross boarder tax advantage to Maine. However, with Vermont raising its tobacco tax by 38 cents in their recent budget and Massachusetts raising theirs by a dollar, we have an opportunity to increase state revenue by 13 million dollars by sharpening our border advantage, according to economists at Southern New Hampshire University.
We all dislike tobacco but this is an opportunity to further capitalize on the willingness of our high tax neighbors to give their citizens an incentive to shop in New Hampshire. Lastly, we built in a circuit-breaker provision into the tax cut to roll it back if it does not increase revenue.
The culmination of all tax policy decisions in this budget will prove a boon to our small businesses, which already do a steady trade in selling goods taxed or regulated heavily by our neighboring states whose citizens and businesses flock across the border to do business. We promised a comeback of the New Hampshire Advantage and we are delivering.
Additionally, our targeted tax cuts will ensure additional long-term revenue for future budget cycles while providing greater flexibility to our small businesses to expand, grow and employ more Granite Staters.
Republicans made a promise that we would give New Hampshire residents a government that lives within its means and one that is focused squarely at making our state the best place to start or expand a business. While we still have more work to do, this legislature is starting strong.