On the contrary, the report estimated that the state lost between $496 million and $729 million in revenue from cuts in the corporate income tax and corporate tax.
“We found no association between the corporate profits tax rate and state job growth or the difference between economic growth in New Hampshire and New England overall,” said Phil Sletten, research director at the New Hampshire Fiscal Policy Institute, during a press event on the new report.
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Business tax rates were cut from 2016 to 2023, but revenue has increased 118 percent as companies have become more profitable, more than making up the difference.
So Sletten wanted to investigate what was responsible for the increase in sales.
“We found that it’s very unlikely that these rate cuts resulted in an increase in revenue,” he said. “In fact, they probably reduced their revenue.”
Corporate taxes are an important source of government revenue, and the corporate income tax is the state’s largest single source of revenue, Sletten said, while growth came from the corporate income tax.
The report noted that the growth was likely driven by factors such as a rise in profits related to the pandemic and inflation or changes in federal tax policies, rather than tax cuts. State corporate tax revenues have increased across the country.
“What we’ve seen here in New Hampshire in our business tax revenue is not a unique phenomenon,” Sletten said.
In fact, according to 2015-2021 census data, New Hampshire lagged behind slightly compared to our neighbors in the region and the country as a whole.
Change in corporate tax revenue, 2015–2021. New Hampshire Fiscal Policy Institute/Phil Sletten
There is also limited evidence that the number of new taxpayers in the state explains the increase in tax revenues. The number of applicants has increased, but revenue has increased “much more dramatically,” Sletten said.
If new applicants were to blame for the surge, there would be a link between the two, he said.
For many companies, a small reduction in the tax rate doesn’t make much of a difference. For example, for a company that pays between $1,000 and $10,000 in taxes, a 0.1 percent reduction in the tax rate means it pays $50 less in taxes. For a company paying more than $1 million, the reduction is still only $33,350 — less than the amount it would pay an employee earning the median wage in the state.
Tax liability of New Hampshire corporations by taxpayers and impact of a possible reduction, based on data for the 2020 tax year.New Hampshire Fiscal Policy Institute/Phil Sletten
“These smaller incremental changes may not be enough of an incentive to get someone across the border,” Sletten said.
A 2014 report released by a state commission investigating corporate taxes came to the same conclusion. “Businesses in New Hampshire are not accounting for the current BPT rate [of 8.5 percent] as a major factor in decisions to expand or locate within the state,” it said. “Factors such as energy costs, a skilled and educated workforce, government infrastructure, and real estate costs (including property taxes) are more of a concern for New Hampshire businesses.”
The corporate tax rate in New Hampshire is 7.6 percent. That’s slightly less than Massachusetts at 8 percent, but higher than Rhode Island’s 7 percent.
Both Vermont and Maine have a tiered tax rate to tax larger corporations at a higher rate depending on the size of the corporation. In Vermont it ranges from 6 to 8.5 percent, while in Maine it ranges from 3.5 to 8.93 percent.
According to the report, however, New Hampshire relies on its corporate taxes more than any other state. The state derived 31 percent of its total tax revenue from corporate taxes in 2021. New Jersey was the second-highest state, with about 14 percent of tax revenue coming from corporate taxes.
Given that dependency, Sletten says it’s important to understand what’s driving the increased revenue, especially given that corporate taxes have historically been volatile.
In conclusion, the report found that “measures to support low- and middle-income individuals and families are likely to have a greater positive effect (on) economic growth than lowering taxes on corporate profits.”
According to Moody’s Analytics, the Supplemental Nutrition Assistance Program (SN`) led to the strongest economic stimulus, delivering $1.61 in growth for every $1 spent on the program. The corporate tax cut only resulted in economic growth of $0.32.
Return on investment from certain policies. New Hampshire Fiscal Policy Institute/Phil Sletten
This article has been updated to clarify information on corporate income tax.
Amanda Gokee can be reached at [email protected]. Follow her @amanda_gokee.
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