Following our neighbors to the land of low employment

By CHARLES M. ARLINGHAUS

New Hampshire usually leads the rest of New England out of a recession, and as lawmakers put together a new budget, jobs should be first on their minds. However, current efforts in Concord pull up the welcome mat for jobs and threaten to undo New Hampshire's reputation as New England's first choice for new business.

The Northeast part of the United States is generally a land of high taxes and excessive business regulation. For decades, New Hampshire has stood out among its neighbors as a business-friendly state with welcoming regulatory and tax climates. The Wall Street Journal once referred to us as an island in a sea of socialism.

That perception may be a slight exaggeration, but there is a reality behind it. The Tax Foundation's annual study of business competitiveness routinely finds New Hampshire among the top 10 states, and our three neighbors among the bottom 10. Although our corporate taxes are among the highest in the country, lack of an income or capital gains tax is a significant incentive to entrepreneurs and business expansion in general.

One of the state's largest employers, BAE Systems, has its office on a lot that includes the state border. It is not mere coincidence that the company built on the New Hampshire side of the line.

While Boston has the significant cultural and educational advantages of a large metro area, New Hampshire has managed to carve out a low-tax brand in the Northeast. That brand is threatened by recent legislative actions.

In media reports, we hear regularly about the net number of jobs gained or lost. But what actually happens is that each year tens of millions of jobs are added to the economy and tens of millions are eliminated. For example, in the first quarter of 2008, we lost a net of 270,000 jobs. A total of 7.1 million jobs were created, but 7.4 million were eliminated.

So even in a down economy, there will be something close to 30 million new jobs created in the country this year. What we want is for New Hampshire to attract a disproportionate share of those jobs, as we have historically done.

Unfortunately, current legislative action is sending the opposite signal to entrepreneurs creating jobs and to companies considering opening new facilities.

The biggest bad signal is the imposition of a capital gains tax. With the high level of exemption, it may not affect you or me. But it is a tax on entrepreneurs and on investment in new business and the jobs that go along with them. The people who create jobs do so not for fun, but to make money. They want to create a business that has value and makes them cash. In the process, they employ some of us.

In today's economy, most of these businesses can be located in almost any state. In that sense, we are competing for their business. We want Mr. Smith to start his business here, not in Tennessee or in Delaware -- not because we love Mr. Smith, but because his enterprise brings jobs and other related activity to us. Mr. Smith is a businessman. If locating in New Hampshire will cost him more, he'll go elsewhere. The capital gains tax is a giant warning sign to him that locating here will not be as lucrative as locating elsewhere. It is perhaps the surest way to discourage job growth in New Hampshire.

In addition to this poorly conceived idea, the Legislature has also passed an onerous law that makes it harder to close a plant here than in the vast majority of other states. It, therefore, discourages opening one in New Hampshire. A bipartisan effort to lower the insurance tax and keep insurance jobs here has been suspended, sending the message to firms in that sector that we weren't serious about wanting them here.

With the budget situation still a mess, other businesses will be on the firing line. With our business taxes already among the highest in the country, any effort to increase them or change the effective rate will cost us jobs and job growth. Trying to squeeze more money out of the businesses we have will encourage them to leave and others to stay away, essentially sacrificing the long-term health of the state for a temporary budget fix.

We can emerge from the recession the economic leader of the region we've been for decades or become an economic backwater like some of our neighbors. The Legislature is two steps down the wrong path. It's time to reverse course, not go further into the woods.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.