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Thursday, October 22, 2009

Live Blogging the Tax Summit- Charlie Arlinghaus

Charlie Arlinghaus- Union Leader columnist and President of the Josiah Bartlett Center for Public Policy.

Arlinghaus started by saying that taxes have grown faster than the New Hampshire economy over the past 20 years. Since 1988, inflation has totaled 85%, the Gross State Product has increased 163%, but total taxes have increased 336%

"Unrestricted revenues"are just 45% of the total budget, 35% are federal funds, and 25% are dedicated funds.

Arlinghaus gave some background on the last two major tax reforms in New Hampshire, the Business Profits Tax in 1970 and the Business Enterprise Tax in 1993.

Before 1970, New Hampshire based its local and state taxes largely on capital, which resulted in a ring of warehouses around New Hampshire and a barrier to investment in the Granite State.

The Business Profits Tax replaced 13 different taxes on capital, stock, and investment, and returned a large portion of the revenue to towns to replace the local taxes it eliminated. Arlinghaus argues that this change from taxing capital to profits dramatically changed the New Hampshire economy, and made it the engine of economic development in New England.

In 1993, Governor Steve Merrill wanted to lower the rate of the Business Profits Tax, which has increased to 8%. Since it only applied to profits, 1% of New Hampshire businesses paid 70% of the tax. Additionally, there were numerous credits and exceptions which complicated enforcement and transparency, and allowed the Legislature to pick winners and losers.

The implementation of the Business Enterprise Tax was designed to be revenue neutral, reducing the BPT from 8% to 7%, increasing the exemption level while cutting special exceptions, repealing the Savings Bank Tax and Corporate Franchise Tax, and setting the BET at just 0.25% Additionally, the BET was credited against the BPT, ensuring that businesses would not be double-taxed.

Arlinghaus stresses that if the Legislature wants to reform taxes, it must have trust that it is changing the tax structure and not merely trying to raise more money. The Legislature needs to be completely transparent when it goes about it. He says any move to increase taxes should be separated from changes to the tax code, so that each question can be debated on its own merits.

He says lacks of trust and transparency doomed Governor Shaheen's call for a Sales Tax. And it was lacking when the Legislature imposed a new tax on Limited Liability Corporations (LLC's) at the last minute in the Committee of Conference.

Arlinghaus says the biggest consideration in tax policy is jobs. New Hampshire also needs revenue to fund programs, but that taxes can not harm New Hampshire's competitive advantage. He argues that now that capital is free, no company has to locate or remain in New Hampshire. He says the Legislature can not be tempted to pick winners and losers through the tax system, and should never raise taxes simply because it can. He cites cigarette tax hikes as an example of a regressive tax that keeps passing.

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