Ross Gittell- Economics Professor at UNH.
How does New Hampshire's revenue structure fit the economy?
Gittell argues that this is the wrong question, and that policy makers should instead ask what they want the New Hampshire economy to be. He says objectives should be economic well-being, good job opportunities, broad economic opportunity, and sustainable economic growth.
He says New Hampshire's tax structure has provided the state with a tax advantage, contributing to New Hampshire's strong economic competitiveness, especially compared to other states in the region. He also reiterates some of the tax competitiveness rankings provided by the Tax Foundation.
Gittell says that New Hampshire's long-term economic performance is best indicated by its improvement in its per capita income rankings among the states, from 20th in 1969 to 7th now. over the decade from 1995-2006, total employment increased by 21% compared to 16% nationally and just 11% in Massachusetts.
Gittell argues that New Hampshire's tax structure has shaped the economy. Relatively high income and high skilled workers are attracted by no personal income tax. But he says a high concentration of retail jobs attracted by no sales tax tend to be lower paying with few if any benefits. He says that lower revenues lead to low state spending investment, including in education.
He says economic projections show continued high demand for public services and a slow recovery of state revenues, especially those related to employment, corporate profits, and housing prices. He predicts another six to twelve months of declining employment, but says the good news is that New Hampshire will likely lead its neighbors into recovery once again.
Gittell says New Hampshire's position of strength as a high technology economy is at risk as "competition for innovation-based engines of growth increases." The current level of high technology employment is down from its peak in the early 1990's, dropping from 4th in 1995 to 9th in 2008. New Hampshire was the worst performing state during the "tech bust", losing 22% of its high technology jobs, and that the sector has not recovered as fast as other states.
Gittell recommendations are:
-"Go to" where you want economy to be
-Remain competitive against other states...retain top ten ranking in Tax Foundation Index
-Reduce burden on business taxe...improve 50th ranking in Tax Foundation Index
Gittell asks the Committee to consider how high corporate taxes and low R&D tax credit impact the state's attractiveness for growing and profitable businesses, as well as tech start-ups and professional service firms.
His "Bottom Line"...
*Do not tax things you want to encourage.
*Tax things you want to discourage (especially when in need of revenue).
*Keep tax structure relatively simple and transparent.
*Keep taxes lower than neighboring and competitor states and below the U.S. median.
*Keep tax structure consistnent.. Do not change frequently.