An Overview of New Hampshire s Tax System

Transcription

1 An Overview of New Hampshire s Tax System Presentation to the House Ways & Means Committee January 9, 2013 Jeff McLynch Executive Director New Hampshire Fiscal Policy Institute jmclynch@nhfpi.org

2 An Overview of New Hampshire s Tax System What are the key elements of New Hampshire s tax system? What are some of the distinguishing features of New Hampshire s tax system? What are some of the revenue challenges that are likely to be before the Legislature in the coming year? 2

3 How Does New Hampshire Generate Revenue? Projected FY12-13 General & Education Fund Revenue: $4.44 billion individual sources of revenue in millions of dollars Source: NHFPI calculations based on Chapter 223 of the Acts of

4 How Does New Hampshire Generate Revenue? Principal Sources of Tax Revenue, FY 2012 FY 2012 Revenue Rate General & Education Funds Business Profits Tax $310 M 8.50% Business Enterprise Tax $202 M 0.75% Meals & Rooms Tax $239 M 9.00% Real Estate Transfer Tax $83 M $0.75 / $100 value Tobacco Tax $215 M $1.68 / pack General Fund only Interest & Dividends Tax $83 M 5.00% Education Fund only State Property Tax Highway Fund only $363 M Varies ($2.39 / $1000 value) Motor Fuel $123 M $0.18 / gallon Source: Department of Administrative Services; Department of Revenue Administration 4

5 Sources of NH Tax Revenue Have Changed in Last Two Decades Composition of Total Tax Revenue by Source, FY 1991 & FY 2010 Source: NHFPI calculations based on Comprehensive Annual Financial Report data 5

6 An Overview of New Hampshire s Tax System What are the key elements of New Hampshire s tax system? What are some of the distinguishing features of New Hampshire s tax system? What are some of the revenue challenges that are likely to be before the Legislature in the coming year? 6

7 Taxes in NH Very Low Relative to Aggregate Ability to Pay Total State and Local Taxes as a Share of Personal Income, FY % 18% 15% 12% 9% US 10.5% NH 8.8% 6% 3% 0% AK NY ND ME HI WV RI CA OH LA US IA NE NV PA MS UT FL NC OK AZ ID VA SC NH TN Source: NHFPI calculations based on US Census Bureau, US Bureau of Economic Analysis data 7

8 New Hampshire s Tax System is Regressive Low-income Granite Staters have an effective tax rate that is four times that of the most well-off. Total State and Local Taxes in New Hampshire, Non-Elderly Taxpayers Source: Institute on Taxation and Economic Policy 8

9 New Hampshire s Tax System Contributes to Perpetual Budget Woes Average Annual Change in Personal Income and in General Fund Tax Revenue, Adjusted for Inflation and Rate Changes, % 2.0% 2.4% 1.5% 1.0% 0.5% 0.6% 0.0% Personal Income General Fund Tax Revenue Source: NHFPI calculations based on LBA, US BEA data 9

10 An Overview of New Hampshire s Tax System What are the key elements of New Hampshire s tax system? What are some of the distinguishing features of New Hampshire s tax system? What are some of the revenue challenges that are likely to be before the Legislature in the coming year? 10

11 Several Key Revenue Sources Outperforming Expectations FY 2013 YTD General & Education Fund projected & actual revenue collections, by source, as share of projected FY 2013 total 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% BPT/BET M&R Plan Actual I&D CST RETT Tobacco MET Source: NHFPI calculations based on data from NH Department of Administrative Services 11

12 Slow Revenue Growth Will Constrain Budget Choices in the Coming Biennium Projected FY General & Education Fund Revenue Under Select Scenarios $87 M $110 M $157 M $4.40 B FY12-13 FY14-15 (Oct 1 Projection) FY14-15 (Tobacco Restored) FY14-15 (Tobacco Restored & Higher Growth) Source: NHFPI calculations based on data from NH Department of Administrative Services 12

13 Slow Revenue Growth Will Constrain Budget Choices in the Coming Biennium Projected FY14-15 General Fund Revenue v. FY14-15 General Fund Maintenance Budget Increases, $M All Else Judiciary Safety Treasury DAS Corrections CCSNH DHHS USNH 0 Projected Increase in FY14-15 Revenue FY14-15 Maintenance Budget Increases Source: NHFPI calculations based on data from NH Department of Administrative Services 13

14 How Will Baseline Revenue Growth Stack Up? Year to Year Change in General Fund Tax Revenue Adjusted for Changes in Policy, % 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Source: NHFPI calculations based on data from the Office of the Legislative Budget Assistant 14

15 Tax Cuts Enacted in 2011 and 2012 Will Yield Permanent Revenue Losses BILL# DESCRIPTION EFF. DATE SB125 BPT: REASONABLE COMPENSATION DEDUCTION 1-Jan-11 HB229 REPEAL GAMBLING WINNINGS TAX 23-May-11 HB2 REDUCE CIGARETTE TAX RATE 1-Jul-11 REDUCE OTHER TOBACCO TAXES 1-Jul-11 HB 1418 BPT: SEC 179 EXPENSING 1-Jan-12 CST: BAN TAX ON INTERNET ACCESS 21-Jun-12 HB 518 BPT: DELAY R&D CREDIT REPEAL 4-Aug-12 HB 1607 BPT: EDUCATION TAX CREDITS 1-Jan-13 HB 242 BPT: INCREASE NOL LIMIT 1-Jan-13 HB 1418 BET: INCREASE THRESHOLDS 31-Dec-13 HB187 BPT: EXTEND BET CARRYFORWARD 1-Jul-14 15

16 Tax Cuts Enacted in 2011 and 2012 Will Yield Permanent Revenue Losses All figures in millions of dollars and are for General & Education Funds combined $120 $100 $80 $60 $40 $110 $60 Effective or later $20 $- Projected increase in revenue from FY12-13 to FY14-15 $29 Revenue loss due to changes in tax policy Effective prior to Source: NHFPI calculations based on data from NH DAS, NH DRA 16

17 Most Major Sources of Tax Revenue in NH Have Declined Since Start of Recession Projected Real Aggregate Change in Select NH Taxes, FY 2008 FY % -40% -30% -20% -10% 0% 10% 20% 30% BPT/BET Meals & Rooms Tobacco Interest & Dividends Insurance Communications Real Estate Transfer FY08-12 FY08-15 Source: NHFPI calculations based on NH DAS & US Bureau of Labor Statistics data 17

18 Revenue Still Well Below Prior Levels General & Education Fund Collections in Millions of FY 15 Dollars, FY $2,800 $2,600 $2,400 $2,200 $2,000 $1, Source: NHFPI calculations based on NH DAS and US Bureau of Labor Statistics data 18

19 Stabilization Deposits Generally Made Near End of Economic Cycles Stabilization fund balances (in millions; left axis); General & Education Fund nominal revenue growth over prior year (right axis) (25.0) Stabilization balance Change in revenue % 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Source: NHFPI calculations based on NH DAS data 19

20 14% New Hampshire Employs a Higher Statutory Rate than Many States Highest Statutory Corporate Income Tax Rate, by State, % 10% NH 8.5% 8% 6% 4% 2% 0% IA MN AK RI CA IN VT MD LA NE NM CT AZ MT AR HI MO KY VA MS UT CO Source: Urban-Brookings Tax Policy Center 20

21 Yet, Business Taxation in NH is Lower than in Most States Total State & Local Taxes Paid by Business as a Share of Private Sector Gross State Product, FY % 12% 10% 8% 6% US 5.0% NH 4.6% 4% 2% 0% AK VT NM NY RI CA NJ PA AL IL WI SD LA TN IN MD UT Source: Council on State Taxation 21

22 Most Businesses Owe Little or No BPT or BET Share of Combined BPT & BET Returns, by Range of Combined Liability, TY 2010 Source: NHFPI calculations based on NH DRA data 22

23 State Business Taxes Are a Relatively Small Share of the Taxes Businesses Pay Composition of State and Local Taxes Paid by New Hampshire Businesses, FY 2011 Source: Council on State Taxation 23

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