The New Hampshire House of Representatives, acting largely along party lines, passed a measure that would bump the state’s business profit tax back up to where it was earlier this decade.
The legislation would restore the rate to 8.5 percent for 2019 and beyond, vacating a plan pushed by then-Gov. Maggie Hassan to phase in reductions in the tax from 2016 to 2022. According to the bill, the roll back would increase state revenues by $6.8 million in fiscal year 2020, $17.6 million the following year and $58.9 million by fiscal year 2023.
The rate is currently set at 7.7 percent this year, and it is scheduled to drop to 7.5 percent starting in 2021. When lawmakers passed the cuts, they voted to stagger the rate reductions over time and with the contingency that future reductions would take place only if the state meets revenue projections.
Those projections have been met so far.
State Rep. Susan Almy, who chairs the House Ways and Means Committee, warned her colleagues that leaner economic times may be ahead. If the economy plateaus, then keeping the cuts in place would lead to a 6 percent loss of revenue by 2024 for the state’s general and education trust fund.
Democrats expressed concern that any gaps in state funding would force steep increases in property tax rates in order to meet obligations.
A downturn in the economy would make matters worse, she added. There hasn’t been a recession in several years, and Almy noted some experts believe one may happen soon.
“When the recession comes, we will need what we lost in order to maintain the basic public services that both our citizens and our businesses rely on,” said Almy, D-Lebanon.
Republicans pounced on the recession fears.
State Rep. Alan Bershtein, R-Nottingham, said if tax rates were raised during a recession, it would double the recession’s impact on businesses. He noted that economists from various schools of thought have spoken against raising taxes during economic downturns.
Instead of taking back the tax rates to their previous levels, he offered another solution.
“A Rainy Day Fund exists to make up for revenue shortfalls during a downturn because it’s bad policy to raise taxes during a recession,” he said.
The House passed the measure, which also reduces the business enterprise tax by 0.1 percent to 0.5 percent, by a 200-141 vote. One independent representative joined 199 Democrats in supporting the measure, while one Democrat voted with Republicans in opposition. It has been referred to the House Finance Committee for its review.