COMMENTARY

Business Should Just Say No to Higher Taxes

May 2003

By Donald J. Pfundstein*
for New Hampshire Business Review

It’s budget time again in Concord.

The $2.7 billion biennial budget that passed the House, 238-142, was more the work of Governor Benson and GOP leadership than its finance committee, since because of the governor’s persistent veto threat, the House declined to fund increased spending with an increase in the cigarette tax.

It’s difficult to find a single special interest group that is pleased with the level of spending. The sole exception is the quiet majority, which is opposed to any increase in business tax levies. Special interest groups will seek increased funding in the Senate. Some of it even sounds pretty reasonable. What’s the revenue side of the picture going to look like if increased spending is approved?

New Hampshire is in better shape than its sister states. Those states with income taxes tend to be in the poorest condition. Although we prefer focusing on the silver lining in the current economy (I personally insist that every problem be approached as an opportunity), things are not really as strong as we would like.

Department of Revenue Administration officials recently reported that business taxes will actually produce less money than projected. Department of Administrative Services Commissioner Don Hill is even less optimistic than his DRA colleagues. The sure bet is that business taxes will not create a runaway source of funds to fuel increased spending.

The state of the economy is very fragile. Geopolitical and related economic uncertainties increased due to Operation Iraqi Freedom. People worldwide have become increasingly more angry with the United States. Future terrorist attacks on American soil are nearly certain.

The ’02 recovery was jobless. Jobs continue to be shed each business cycle. When a recovery gains pace, jobs are not replaced, due in part to productivity gains resulting from technology.

During February ’03 alone, the U.S. sustained a 204,000-job decline in the service sector, the engine of the new information economy. With the exception of the losses directly related to the terrorist attacks of September 11, 2001, this was the largest such loss since the 1973-75 recession.

The 1973-75 economic climate produced the worst post-World War II recession experienced in the United States. March ’03 brought continued job losses in the service sector.

Business investment and capital expenditures, which collapsed during ’01, have not returned. Consumer fundamentals are eroding further. Equity market weaknesses continue, notwithstanding the recent uptick. The stock market has not seen three down years (’00 through ’02) since 1939-1941 as the world entered World War II.

The economy is not likely to rebound in any meaningful way in the short term, despite the war having gone much better than expected to date. This would be a terrible time to increase business taxes.

According to a study commissioned last year by the New Hampshire Bankers Association, even a small increase in business taxes will create a significant drag on the state’s economy. Just one more little “tweak” will cause critical losses in New Hampshire jobs, sales, investment, household earnings and gross state product.

Last June, I challenged commerce and industry to take their business seriously. Refusing to vote for any gubernatorial candidate who failed to guard against business tax increases would send a strong message. Any candidate who equivocated on the “no business tax oath” was not to receive the votes or resources of the business community. To those who dislike litmus tests, I offered no apology.

Governor Benson and the other four major candidates for the corner office took the “no business tax oath.” A majority (100 percent of the survey respondents) of the Senate vowed to vote against any increase in business taxes or removal of the business enterprise tax credit against the business profits tax. They also vowed to protect the recent net operating loss deduction gains.
So what’s the problem, you ask?

If increased spending is approved, there will need to be additional revenue to fund the increases. Revenue could come from a number of sources — gaming, cigarette taxes, property taxes or business taxes. Do you want to pick one?

The best defense is a good offense. Hold the line on spending. Live within our means. Reallocate — do not add spending priorities. If needs have not been met, then find a want that is and shave it back. The best way to avoid increased business taxes is to hold the line on spending.

Some editorial writers laugh at Governor Benson’s three-legged desk. Spenders scoff at the “kitchen table” approach to state spending. But, you know what? That’s what you do at home and in small businesses all over the Granite State.

Pick up your phone or fire up your e-mail tonight. Let your senators and representatives know that living within our means is the best strategy for keeping their word — no increased business taxes!

*Donald J. Pfundstein is admitted in New Hampshire.

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