Charlie Arlinghaus

August 1, 2012

As originally published in the New Hampshire Union Leader

Election season breeds people blowing hard but spreading little other than hot air (insert your own joke here about my column). Let me shorten some of it for you but then suggest a few constructive things.

Each economic report that comes out will be an opportunity for those in power to explain how their ideas, although crafted for long term, are even now having an impact. See? Sweetness and light are even now being spread to the masses in desperate need spurred not because our policies took effect but because our very presence is a signal. Those out of power will say the opposite: even now the wasteland of destruction sure to be created by the bad guys is leaking out and the scariness of that desolation depresses everyone we need to be happy.

No matter your political philosophy, feel free to take this as a criticism of the other guys. In New Hampshire we have the fortune of living under the authority of a left-leaning Democratic president and a right-leaning Republican legislature. Clearly the success we enjoy is because one of those two is doing the right thing and countering the bad bits of the other.

Political windbags aside, all of this focus on jobs and the economy is a good thing. Whether you want to expand social programs to cover more people or make them more efficient, a growing economy and job base in New Hampshire benefits everyone.

The budget difficulties of the last few years were a direct result of the collapse of state revenue. Revenues go up when there are more jobs and down when there are fewer. Fewer jobs mean more people on state services. Regardless of your support for a social safety net, everyone’s ultimate goal is to have more people working. Almost no one prefers being a ward of the state to having an actual job.

So the task for those men and women who would be governor or would be legislators is to identify changes they can make to bring more and better jobs to the state.

Every candidate will talk about the things they don’t like, the things wrong with what’s happening in Concord or what used to be happening in Concord. More important is that we take this opportunity to redirect their conversation.

As a voter, we can say thank you for telling us what was right and wrong with the last session but please tell us what you would do instead.

Every economic development professional will tell you that the first thing people ask about is taxes. New Hampshire is very attractive to most business in some ways on taxes and less so on others. In general, the lack of a sales or income tax is a huge benefit and a big signal to most businesses. However, coupled with that is our Achilles heel: direct business taxation.

New Hampshire’s business tax is a Business Profits Tax and a linked Business Enterprise Tax. The combined tax makes up about one quarter of the state’s general and education fund revenue (the state operating budget) and is more than twice as large as the next largest tax.

The difficulty is that the rate over the last two decades has climbed to 8.5% (the creditable BET is 0.75% of a different base). According to the Tax Foundation, an arbiter of these things used by people on both ends of the spectrum, that gives us the highest business taxes in the country. Our competitiveness in their rankings is improves in other areas but on that subcategory, very important to sectors like manufacturing for site location, we are at a serious disadvantage.

The last legislature needed to balance the budget which was in a very bad spot – deficit estimates ranged from $600-$900 million. Cutting spending first was important to put us in a position to be able to reduce taxes as a business incentive.

I think they made a mistake cutting tobacco taxes first. Although tobacco taxes rose four of the previous five years and are extraordinarily regressive (poor people smoke in much greater proportion that wealthy people), lowering them creates little economic incentive. The first tax we should lower is the business profits tax.

Taxes are fundamentally a price on economic activity. Lowering the price of specific activities creates more of that activity – the incentives are stronger in some area than others but business taxation is among the most responsive areas.

As a candidate, tell me what you want to do about the budget – the most concern of state government. But tell me why. Let’s get our candidates thinking about job creation not just political wind.

1 reply
  1. maynard thomson
    maynard thomson says:

    Charlie:

    Fair question. See my web site: http://www.maynardfthomson.com. My focus: how we re-configure and re-direct state government to do what’s appropriate to government to foster a 21st century economy in NH.

    If you read it, you will almost certainly be one of four people to do so. I’ll be grateful for any comments or criticisms.

    Maynard

    Reply

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