CONCORD — The House on Thursday gave preliminary approval to two bills that would change the state’s tax rates for businesses and establish for the first time in state history a tax on capital gains.
Democrats framed the legislation as necessary to ease the burden on local property taxes and prepare for the next recession, while Republicans decried the changes as tax increases that will choke off the business growth that has in recent years fueled surpluses in state revenue.
Both votes were mostly along party lines.
Business tax cuts that took effect at the start of this year, and another round of cuts scheduled to take effect on Jan. 1, 2021, would be thwarted by HB 623, which passed 200-141.
HB 686, creating a 5-percent capital gains tax, passed 199-143.
The state has been cutting business taxes since 2015, when the business profits tax was 8.5 percent and the business enterprise tax, essentially a payroll tax, was at 0.75 percent.
After a series of cuts approved for 2016 and another round in 2018, the BPT stood at 7.9 percent and the BET at 0.65 percent, and that’s where they will stay if HB 623 becomes law.
A reduction that took effect on Jan. 1 of this year would be rescinded, and a further reduction scheduled to take effect on Jan. 1, 2021, would be cancelled. If those two reductions were left in place, by 2021, the BPT would be at 7.7 percent and the BET at 0.60.
Republicans argued that revoking those cuts creates uncertainty about tax policy and breaks a promise that businesses are relying on.
“This bill increases unpredictability of legislative action and undermines the ability of enterprises to plan for the future,” said Rep. Alan Bershtein, R-Nottingham. “The tax each business is bound to pay ought to be certain and not arbitrary.”
Rep. Susan Almy, D-Lebanon, chair of House Ways and Means, described the cuts as arbitrary and of benefit to a small portion of the state’s largest businesses.
She said the revenue increases the state has seen in recent years had more to do with growth in the international economy and federal tax policy, and the state needs to anticipate another recession in the near future.
“We ought to digest the many business tax cuts we’ve already made before we move forward with bigger tax cuts,” she said.
“These cuts take a large chunk of the total available in the next budget, which must pay for the increased services our business and citizens will need to survive the recession and prosper after it, which is why we need to stop the bleeding now in our largest revenue source.”
Bershtein agreed that a recession may be on the horizon, but argued, “No economists advocate for tax increases in a recession. During a recession you lower taxes. This bill would eliminate a reduction in business taxes at the same time the bill’s own sponsor expects us to be entering a recession.”
HB 686, extending the state’s 5 percent tax on interest and dividends to capital gains, was described by Rep. Richard Ames, D-Jaffrey, as a bill that would “enable sorely needed public education funding and property tax relief.”
Money from the new tax would be used to reduce the statewide education property tax rate by 25 percent and increase per-pupil education grants.
Republicans described the bill as discouraging risk-taking by investors.
“This is an attack on business creation,” said Rep. Patrick Abrami, R-Stratham. “This is a tax on risk-taking. With this tax as proposed, New Hampshire will not join the investor in sharing in their loss, but will seek 5 percent on the gain realized by the sale of a successful business, stocks, bonds, precious metals, property and other non-inventory assets.”
Capital gains from the sale of a primary residence, or earnings from retirement accounts, would be exempt.
Both bills were referred to the Finance Committee for a second review and will likely come back to the House for another vote.