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

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 1

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? 2

Background Problem: Increased education funding Increased likelihood of budget deficit Response to date has included: Increased business taxation Doubled business share of education funding 3

Background State Grants for Education Aid to New Hampshire Communities $500 $451 $400 $434 $408 $409 (Millions $) $300 $200 $100 $100 $0 1999 2000 2001 2002 2003 State Fiscal Years 4

Background State's Grants' Share of an Adequate Education 30% 26.7% 24.5% Percent of New Hampshire 25% 20% 16.2% Residents 15% 9.3% 8.9% 10% 5.7% 4.6% 3.3% 5% 0.7% 0.0% 0.3% 0% < 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 5

Background State Grants Disbursed to Cities and Towns Business Tax Share Doubled this Biennium 2000-2001 2002-2003 33% 16% BET/BPT BET/BPT $292 Million $130 Million Total Total $817 Million $885 Million 6

Background Business Tax Collections (BET and BPT) $450 $444 $400 $430 $350 $354 (Millions $) $300 $317 $250 $258 $239 $200 $150 $100 $50 $0 1998 1999 2000 2001 2002 est. 2003 est. Fiscal Years 7

Background BET has risen 300% in four years At 8.5%, BPT among highest in nation 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% 8

Background Problem: Deficit continues to grow Response: Will business taxation be increased again? What is the economic impact of that increase? 9

Background Annual Deficits Continue to Grow $0 -$23 -$20 (Millions $) -$40 -$60 -$60 -$80 -$91 -$95 -$100 2002 est. 2003 est. 2004 est. 2005 est. State Fiscal Years 10

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 11

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

Approach Business Taxes $ $ Return on Investment 13

Approach 4 Econometric Model of New Hampshire Economy (REMI) h Simulate three different CY 2003 $100 million increases in business taxation that remain in effect for 10 years h Results reported as differences from a 10-year control forecast 4 Sensitivity analysis to different control forecasts and to alternative models and methodologies 14

Approach $100 Million New Revenue in 2003 Estimated Rate Increases on Business Taxes Scenarios Rate Increases A BPT Rate Increase only Increase from 8.5% to 12% Repeal of BET Credit only Equivalent to Repeal of the Credit B BET Rate Increase only Increase from .75% to 1.2% C Rate Increase on BPT, Partial BPT: 8.5% to 10.3% • BET: .75% to 1% Repeal of Credit, Rate Increase on BET 15

Approach Modeling $100 Million Business Tax Increase Model Inputs Capital Cost Labor Cost Business Tax Increase Increase Increase Scenario (Basis Points) (Basis Points) A BPT Tax Increase/ 48 0 Repeal of the Credit B BET Tax Increase 10 30 C BPT/Repeal/BET 29 15 16

Key Findings Variation Across Scenarios 8 BPT increase/Repeal of Credit (Scenario A) more negative impact in first couple of years as compared to BET increase only 8 Negative Impacts from BET (Scenario B) accelerate more rapidly 8 Reductions in Investment and in Construction Jobs larger over forecast period for Scenario A as compared to Scenario B 17

Key Findings SELECT GRAPHICS Scenario C 18

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 -$1,084 *In Millions 2002$ 19

Key Findings $100 Million Business Tax Increase Annual Job Losses 0 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 -500 -1,000 -1,500 -2,000 20

Key Findings $100 Million Business Tax Increase Annual Percentage Job Losses 0.00% 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 -0.05% -0.10% -0.15% -0.20% -0.25% 21

Key Findings $100 Million Business Tax Increase Additional Annual Job Losses in Manufacturing (10-year cumulative = -1,183) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 -40 -80 -120 -160 22

Key Findings $100 Million Business Tax Increase Additional Annual Job Losses in Construction (10-year cumulative = -2,294) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 -50 -100 -150 -200 -250 23

Key Findings $100 Million Business Tax Increase Additional Annual Job Losses inTransportation & Public Utilities (10-year cumulative = -572) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 -20 -40 -60 -80 24

Key Findings $100 Million Business Tax Increase Additional Annual Job Losses in Finance & Insurance & Real Estate (10-year cumulative = -731) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 -15 -30 -45 -60 -75 -90 25

Key Findings $100 Million Business Tax Increase Additional Annual Job Losses in Retail Trade (10-year cumulative = -3,592) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 -75 -150 -225 -300 -375 -450 26

Key Findings $100 Million Business Tax Increase Additional Annual Job Losses in Wholesale Trade (10-year cumulative = -738) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 -15 -30 -45 -60 -75 -90 27

Key Findings $100 Million Business Tax Increase Additional Annual Job Losses in Services (10-year cumulative = -6,072) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 -100 -200 -300 -400 -500 -600 -700 -800 28

Key Findings $100 Million Business Tax Increase Annual Loss of Household Earnings (2002$) $0 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 -$15,000,000 -$30,000,000 -$45,000,000 -$60,000,000 -$75,000,000 -$90,000,000 29

Key Findings $100 Million Business Tax Increase Annual Loss of Gross State Product (2002$) $0 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 -$40,000,000 -$80,000,000 -$120,000,000 -$160,000,000 30

Key Findings $100 Million Business Tax Increase Annual Percentage Loss of Gross State Product 0.00% 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 -0.05% -0.10% -0.15% -0.20% 31

Key Findings $100 Million Business Tax Increase Annual Sales Losses (2002$) $0 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 -$50,000,000 -$100,000,000 -$150,000,000 -$200,000,000 -$250,000,000 -$300,000,000 32

Key Findings $100 Million Business Tax Increase Fiscal Impacts ($2002 Millions) 10-year Economic Indicator 2003 Average Annual Cumulative 2003-2012 State Revenue Changes Due to Reduction in Economic Activity -$9 -$136 -$14 Local Revenue Changes Due to Reduction in Economic Activity -$2 -$65 -$6 33

Key Findings Changes in Employment (10-year Forecast Period) 80,000 75,834 60,000 59,254 40,000 20,000 0 Without Business Tax With Business Tax Increases Increases $100 million increase in business taxation reduces job growth over the next 10 years by 16,580, or 22%. 34

Key Findings Changes in Investment (10-year Forecast Period) $8 (Billions 2002$) 7.092 $6 6.008 $4 $2 $0 Without Business With Business Tax Tax Increases Increases $100 million increase in business taxation reduces investment over the next 10 years by $1.1 billion, or 15%. 35

Key Findings Examples of Large Job Losses: Berlin/Gorham Mills 850 General Electric 137 Flextronics 324 Hitchner 344 Teradyne 350 36