Report Raises Questions About Value of Further Cut in Corporate Profits Tax Rate

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It didn’t take very long before the NH Senate Ways and Means Committee hearing on a proposal to reduce the corporate income tax rate from 7.6% to 7.5%. turns into a partisan debate. “Our business taxes have gone down year over year,” said Sen. Lou D’Allesandro, D-Manchester. “How low do you think business taxes should go to be competitive? Would no tax be appropriate? “Well, to me, the lower the taxes, the better for the economy,” said Rep. Notter R-Merrimack, lead sponsor of Bill 1221. “The lower the taxes, the better the income to manage are low.” state government,” D’Allesandro fired back.

“I would like to make a comment,” said committee chairman Senator Bob Giuda. R-Warren. “Professional taxes amount to 28 million dollars and cumulative income since the beginning of the year amounts to 239 million dollars. There’s more than enough to take a twentieth of 1 percent off the tax. As we can see from history, when the Legislative Assembly cuts taxes, our income continues to rise. So I have no worries. »

“Wouldn’t it be more useful to increase the filing threshold so that fewer small businesses are subject to it?” Senator Cindy Rosenwald, D-Nashua.

“Companies outside the state represent only 10.6% of BPT taxpayers,” Giuda replied.

Giuda is right. But this small minority pays the bulk of the BPT. According to a new report from the NH Fiscal Policy Institute, whose publication apparently coincided with the hearing, waterside filers – large multinationals operating overseas – make up just 5.7% of BPT filers. , but paid 60.2% of all revenue collected.

To break it down another way, 80 of the state’s 77,000 BPT filers accounted for nearly 44% of BPT revenue, or $36.7 million. These filers would receive an average tax break of $36,677, just $10,000 less than the average full-time worker in the state earns, as NHFPI report author Phil Sletten wrote. .

According to the report, the majority of companies paying taxes – which amounts to about 7,850 companies – paid between $1,000 and $10,000 on their BPT taxes, and they would receive less than $50 a year with the proposed reduction. .

But the vast majority of BPT filers – almost 60,000 business 0s – pay nothing at all, probably because they don’t meet the threshold or because they pay business tax, which can be used as credit against any BPT debt.

The NHFPI report also contradicts claims that previous corporate tax cuts were responsible for the increase in state revenue, noting that the injection of federal spending and an increase in corporate profits in the over the past few years were the reasons.

The report cites an Urban Institute study that showed a 36.5% increase in national corporate tax revenue from the third quarter of 2020 to the same quarter in 2021, although New Hampshire business revenue increased. by 26.4%.

Some of these numbers were repeated at the hearing by Rep. Richard Ames, D-Jaffrey, who argued that a reduction in the BPT rate won’t really benefit the economy but will mostly benefit big business.

But big business and out-of-state corporations “are very important to the economy,” said David Juvet, senior policy director at the Business and Industry Association. “They are taxpayers in this state because they have business operations, which means they have employees who work here and provide tens of thousands of jobs.”

How about a BET cut?

Interestingly, BET has been excluded from this tax cut, even though it has been included in all proposed corporate tax cuts since 2016, when the BPT rate was 8.5% of profits and the BET of 0.75% of wages, interest and dividends. This year, if approved, the BPT would meet the target set in 2017 of reducing the rate to 7.5%.

Notter included a BET rate reduction to 0.5% in its original bill, but the House and Ways and Means Committee eliminated it after reviewing the tax memo, which stated that a BET reduction would cost $27. $5 million per year while the BPT reduction would cost $8.5 million per year.

“We were cautious,” said Rep. John Janigian, R-Salem.

It could also be that while BPT was outperforming by 33.5%, BET was underperforming by around 12.3%, Department of Revenue officials said, although this could be due to the labor shortage, since the BET is essentially a payroll tax. .

The bill — which passed the House March 17 177-141 — should have a good chance in the Republican-controlled Senate. The governor, after praising previous corporate tax cuts in his state of the state address, urged lawmakers to “do it again.”

The main question is whether to include BET reductions in the final result.

Currently, the 0.55% rate is extremely close to the 0.5% target.

Bruce Berke, state director of the National Federation of Independent Businesses, told NH Business Review that while he supports the bill, he’s worried it won’t include a reduction in BET because it would help small businesses. companies.

“These small businesses also need this promise, this direction that was given to them seven or eight years ago,” he testified before the committee.

There are indications that there may be concessions to the Senate. At the end of the hearing, Giuda asked for estimates on the cost of reducing the BET in intervals, from 0.55 to 0.5%.

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