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New Hampshire On Track for Triggered Tax Cuts

1 min readBy: Jared Walczak

When the New Hampshire legislature presented Governor Maggie Hassan (D) with a program of modest reductions to the state’s business profits taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. (a corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. ) and business enterprise tax (essentially a value-added tax), she initially rejected the proposal, arguing that the reductions would “create a more than $90 million budget hole.” Eventually, however, the governor acquiesced on the tax reductions—with a further round of cuts subject to revenue triggers—and, six months in, the revenue outlook is highly encouraging.

For starters, that $90 million hole is currently a $100 million surplus.

Business tax receipts are 13.2 percent above projection, following a reduction in the business profits tax rate from 8.5 to 8.2 percent, and the business enterprise tax from 0.75 to 0.72 percent. Should current revenue trends hold for another year, further tax relief can be expected.

This next round of reductions relies on a tax trigger, proceeding only if biennial general and education revenues exceed $4.6 billion. One year into the biennium, revenues stand at $2.4 billion, putting the state more than on track to trigger a reduction in the business profits tax rate to 7.9 percent, while cutting the business enterprise tax rate to 0.675 percent.

New Hampshire is not the only state to make the implementation of tax reform contingent, in whole or in part, on meeting revenue benchmarks. Four other states and the District of Columbia are currently leaning on tax triggers to phase in rate reductions and other tax changes. Well-designed tax triggers can help states phase in tax reform while ensuring revenue stability, and can be a valuable tool in tax reform efforts. And in New Hampshire’s case, at least, tax triggers formed the basis of a compromise that appears poised to bring further tax relief in 2018.