Purpose Questions Studied What is the likelihood of a budget - - PowerPoint PPT Presentation

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Purpose Questions Studied What is the likelihood of a budget - - PowerPoint PPT Presentation

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Budget Deficits and Business Taxes in New Hampshire Presentation of Study Results May 9, 2002 Prepared for: New Hampshire Bankers Association 122 North Main Street Concord, New Hampshire 03301 Tel. (603) 224-5373 www.nhbankers.com

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Budget Deficits and Business Taxes in New Hampshire

Presentation of Study Results

May 9, 2002

Prepared for: New Hampshire Bankers Association 122 North Main Street Concord, New Hampshire 03301

  • Tel. (603) 224-5373

www.nhbankers.com Authored by:

  • Dr. Lisa Shapiro, Chief Economist
  • Mr. Charles Connor, Budget Expert
  • Ms. Heidi Kroll, Market and Policy Analyst

Gallagher, Callahan & Gartrell Professional Association 214 North Main Street Concord, New Hampshire 03301

  • Tel. (800) 528-1181

www.gcglaw.com

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Purpose Questions Studied What is the likelihood of a budget deficit in the next fiscal biennium? What is the economic impact of a response that further increases the tax burden on New Hampshire businesses?

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Background Problem: Increased education funding Increased likelihood of budget deficit Response to date has included: Increased business taxation Doubled business share of education funding

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Background

$100 $409 $408 $434 $451

$0 $100 $200 $300 $400 $500 (Millions $) 1999 2000 2001 2002 2003 State Fiscal Years

State Grants for Education Aid to New Hampshire Communities

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Background

9.3% 0.7% 3.3% 5.7% 4.6% 24.5% 26.7% 16.2% 8.9% 0.3% 0.0%

0% 5% 10% 15% 20% 25% 30% Percent of New Hampshire Residents

< 0% 0% < 10% 10% < 20% 20% < 30% 30% < 40% 40% < 50% 50% < 60% 60% < 70% 70% < 80% 80% < 90% 90% <100%

Percent of Adequacy Funded by the State

State's Grants' Share of an Adequate Education

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2000-2001

Total $817 Million 16% BET/BPT $130 Million

2002-2003

Total $885 Million 33% BET/BPT $292 Million

Background

State Grants Disbursed to Cities and Towns Business Tax Share Doubled this Biennium

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$239 $258 $317 $354 $444 $430

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450

(Millions $)

1998 1999 2000 2001 2002 est. 2003 est.

Fiscal Years

Business Tax Collections (BET and BPT)

Background

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BET has risen 300% in four years At 8.5%, BPT among highest in nation Background

New Hampshire Business Tax Rates

Fiscal Year

1998 1999 2000 2001 BPT (with BET credit) 7.0% 8.0% 8.0% 8.5% BET .25% .25% .50% .75%

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Background Problem: Deficit continues to grow Response: Will business taxation be increased again? What is the economic impact of that increase?

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Annual Deficits Continue to Grow

Background

  • $23
  • $60
  • $91
  • $95
  • $100
  • $80
  • $60
  • $40
  • $20

$0 (Millions $)

2002 est. 2003 est. 2004 est. 2005 est.

State Fiscal Years

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Approach What is the economic impact of increasing business taxation by $100 million? Business Taxes Defined: 1. Business Profits Tax -- BPT 2. Business Enterprise Tax -- BET 3. BET Credit against BPT

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Approach Repeal of the BET Credit = BPT Increase to 12%

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Approach

Business Taxes $ $ Return

  • n

Investment

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4Econometric Model of New Hampshire Economy (REMI)

hSimulate three different CY 2003 $100 million increases in business taxation that remain in effect for 10 years hResults reported as differences from a 10-year control forecast

4Sensitivity analysis to different control forecasts and to alternative models and methodologies

Approach

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Approach

$100 Million New Revenue in 2003 Estimated Rate Increases on Business Taxes

Scenarios Rate Increases A BPT Rate Increase only Repeal of BET Credit only Increase from 8.5% to 12% Equivalent to Repeal of the Credit B BET Rate Increase only Increase from .75% to 1.2% C Rate Increase on BPT, Partial Repeal of Credit, Rate Increase on BET BPT: 8.5% to 10.3% • BET: .75% to 1%

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Approach

Modeling $100 Million Business Tax Increase

Model Inputs Business Tax Increase Scenario Capital Cost Increase (Basis Points) Labor Cost Increase (Basis Points) A BPT Tax Increase/ Repeal of the Credit 48 B BET Tax Increase 10 30 C BPT/Repeal/BET 29 15

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Key Findings Variation Across Scenarios

8BPT increase/Repeal of Credit (Scenario A) more negative impact in first couple of years as compared to BET increase only 8Negative Impacts from BET (Scenario B) accelerate more rapidly 8Reductions in Investment and in Construction Jobs larger over forecast period for Scenario A as compared to Scenario B

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SELECT GRAPHICS

Scenario C

Key Findings

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Key Findings

$100 Million Business Tax Increase Economic Impacts

Economic Indicator First Year 10th Year Cumulative Jobs

  • 1,112
  • 1,989
  • 16,580

Household Earnings *

  • $45
  • $82
  • $670

Sales*

  • $110
  • $266
  • $2,003

Gross State Product *

  • $63
  • $156
  • $1,162

Investment *

  • $93
  • $116
  • $1,084

*In Millions 2002$

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Key Findings

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

  • 2,000
  • 1,500
  • 1,000
  • 500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$100 Million Business Tax Increase Annual Job Losses

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Key Findings

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

  • 0.25%
  • 0.20%
  • 0.15%
  • 0.10%
  • 0.05%

0.00%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$100 Million Business Tax Increase Annual Percentage Job Losses

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Key Findings

$100 Million Business Tax Increase Additional Annual Job Losses in Manufacturing (10-year cumulative = -1,183)

  • 160
  • 120
  • 80
  • 40

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Key Findings

$100 Million Business Tax Increase Additional Annual Job Losses in Construction (10-year cumulative = -2,294)

  • 250
  • 200
  • 150
  • 100
  • 50

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Key Findings

$100 Million Business Tax Increase Additional Annual Job Losses inTransportation & Public Utilities (10-year cumulative = -572)

  • 80
  • 60
  • 40
  • 20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Key Findings

$100 Million Business Tax Increase Additional Annual Job Losses in Finance & Insurance & Real Estate (10-year cumulative = -731)

  • 90
  • 75
  • 60
  • 45
  • 30
  • 15

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Key Findings

$100 Million Business Tax Increase Additional Annual Job Losses in Retail Trade (10-year cumulative = -3,592)

  • 450
  • 375
  • 300
  • 225
  • 150
  • 75

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Key Findings

$100 Million Business Tax Increase Additional Annual Job Losses in Wholesale Trade (10-year cumulative = -738)

  • 90
  • 75
  • 60
  • 45
  • 30
  • 15

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Key Findings

$100 Million Business Tax Increase Additional Annual Job Losses in Services (10-year cumulative = -6,072)

  • 800
  • 700
  • 600
  • 500
  • 400
  • 300
  • 200
  • 100

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Key Findings

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

  • $90,000,000
  • $75,000,000
  • $60,000,000
  • $45,000,000
  • $30,000,000
  • $15,000,000

$0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$100 Million Business Tax Increase Annual Loss of Household Earnings

(2002$)

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Key Findings

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

  • $160,000,000
  • $120,000,000
  • $80,000,000
  • $40,000,000

$0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$100 Million Business Tax Increase Annual Loss of Gross State Product

(2002$)

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Key Findings

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

  • 0.20%
  • 0.15%
  • 0.10%
  • 0.05%

0.00% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$100 Million Business Tax Increase Annual Percentage Loss of Gross State Product

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Key Findings

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

  • $300,000,000
  • $250,000,000
  • $200,000,000
  • $150,000,000
  • $100,000,000
  • $50,000,000

$0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$100 Million Business Tax Increase Annual Sales Losses

(2002$)

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$100 Million Business Tax Increase Fiscal Impacts

($2002 Millions)

Key Findings

State Revenue Changes Due to Reduction in Economic Activity

  • $9
  • $136
  • $14

Local Revenue Changes Due to Reduction in Economic Activity

  • $2
  • $65
  • $6

10-year Cumulative 2003-2012 Average Annual Economic Indicator 2003

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Key Findings

75,834 59,254

20,000 40,000 60,000 80,000

Without Business Tax Increases With Business Tax Increases

Changes in Employment

(10-year Forecast Period)

$100 million increase in business taxation reduces job growth over the next 10 years by 16,580, or 22%.

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Key Findings

7.092 6.008

$0 $2 $4 $6 $8

(Billions 2002$) Without Business Tax Increases With Business Tax Increases

Changes in Investment

(10-year Forecast Period)

$100 million increase in business taxation reduces investment over the next 10 years by $1.1 billion, or 15%.

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Key Findings Examples of Large Job Losses: Berlin/Gorham Mills 850 General Electric 137 Flextronics 324 Hitchner 344 Teradyne 350