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Wednesday, May 20, 2009

Ending New Hampshire’s Forty Year Experiment with Job Creation

(Here is Charlie's Union Leader column, which is printed on dead trees this morning, but not yet available on UnionLeader.com.)

Forty years ago, New Hampshire embarked on a course for economic development and job growth that has served it well and set it apart from the rest of the Northeast. Today, the governor and the legislature are considering reversing that course and falling in line with the New Yorks and Massachusettses of the world.

Not that long ago, the New England states were six peas in a similar pod. In economic terms, New Hampshire may as well have been East Vermont or Massachusetts North. In terms of economic competition, there was little to give us an advantage over our neighbors when it came to attracting jobs.

Then-governor Walter Peterson noted that our taxes on capital and merchandise and investment led to a circle of warehouses and similar institutions ringing our border. While other states had flirted with adding additional forms of taxation like sales or income taxes, Peterson went in a different direction.

He reformed business taxation in 1970 by eliminating thirteen different taxes, essentially taxes on capital and investment. In their place, he created the Business Profits Tax. New Hampshire created an incentive to invest in our state and to move capital here not by adding one tax on top of another but by repealing a host of small and large taxes and replacing them with a tax that gave us a competitive advantage.

In the four decades since, New Hampshire’s economy has benefitted from a consistent competitive advantage over our neighbors. We have led the other states in job creation and our economy has grown faster than the states we border.

As a small state with less than one-half of one percent of the nation’s population, we distinguish ourselves not by our vast marketplace but by a friendly business and tax climate.

There is a second type of experimentation in tax policy symbolized by New York. The State of New York has decided to hope that tax policy doesn’t affect behavior. They have decided to raise taxes on everyone for everything and hope only a few sourpusses get up and leave. Tax increases on haircuts and music downloads may not have the same job destroying potential but the enormous income tax increases on entrepreneurs will.

Tom Golisano has run for Governor a few times and owns the Buffalo Sabres. He’ll become a resident of Florida. But this danger isn’t unique to New York. In this week’s Wall Street Journal we learn the last decade saw more than 1,000 people per DAY leaving the nine highest income tax states and relocating to lower tax jurisdictions.

States compete against each other and little New Hampshire has an advantage over the high tax states in the region. That’s the reason jobs move here. When the economy turns and jobs begin to come back, they will move to states with an economic advantage. The only question is will New Hampshire be among those states?

Current sentiment in Concord is more inclined to follow Gov. Paterson of New York than former Gov. Peterson of New Hampshire. The incentives Paterson is creating drive wealth and job creation away. That helps explain why the ten lower tax, no income tax states created 89% more jobs than their high tax counterparts. Concord wants to tax capital gains, raise taxes on tourism (meals and rooms), cigarettes, gas, tolls, stop a planned cut in the insurance tax, create a new death tax, and has considered raising business taxes again.

Former Governor Peterson’s efforts brought jobs and prosperity to New Hampshire by creating the right incentives not by betting people wouldn’t have anywhere else to go. The world is smaller and the economy more global. Jobs can move around.

Governor Perry of Texas told the Wall Street Journal that his state needed a pro-growth tax system because they were competing for jobs with Germany and France and China as well as other states. He’s cutting taxes this year and Texas created more jobs in 2008 than the rest of the country put together.

Forty years ago, we had that attitude. We wanted more jobs not more government. We wanted the economic incentives to exist to bring jobs here. Today, the powers that be are thinking about more money, talking about more taxes, and hoping jobs won’t be affected. It’s not a good bet.

Charlie Arlinghaus is President of the Josiah Bartlett Center for Public Policy, a free-market think tank based in Concord, NH.

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