Tax Reform

The New Hampshire Primary Results Project Little Hope in Economic Growth

Sanders, Trump tax policies leave some unanswered questions

On the night of the New Hampshire Primary, Granite Staters came out in strong numbers to support Democratic Socialist Senator Bernie Sanders and Republican real estate mogul Donald Trump. After examining the entry and exit polling, it is clear voters on both sides share the same concern: the economy. However, Granite State voters might be surprised to learn neither candidate’s tax plans would do much to improve the economy in their state.

Depending on the issue, New Hampshire fiscal policy can range from excellent to economically damaging. New Hampshire is one of nine states that does not levy a personal income tax, which makes it economically competitive. On the other hand, its business profits tax rate of 8.5 percent is among the country’s worst taxes on businesses, as is its property tax burden. The business profits tax is scheduled to drop to 8.2 percent in 2017, but as a practical matter, it will remain among the least-pro-growth rates in the nation.

New Hampshire is also a forced-unionism state and falls in the bottom quarter of states for average workers’ compensation costs and debt service as a share of tax revenue. Since 2007, New Hampshire’s population has steadily decreased, a sign of people—and wealth—leaving for better opportunities. In 2014 alone, nearly 6 percent of New Hampshire millennials left the state.

Because of its varying policies, New Hampshire’s economic priorities are difficult to gauge, which some pundits might suggest make the state a good testing ground for presidential candidates’ platforms. The state’s inherent fiscal inconsistencies might also explain the seemingly irreconcilable gulf between voters’ concerns about the economy and their support for Sanders and Trump.

In the eighth edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, New Hampshire’s economic outlook ranked 29th out of the 50 states. While New Hampshire ranks among the best of the Northeast states, the Northeast is uncompetitive compared to the rest of the United States. Census data show that individuals and businesses continue to move out of the Northeast to states that have more pro-growth economic climates. Since 1960, states ranging from Maine to Pennsylvania have lost a shocking 29 seats in the U.S. House of Representatives due to population shifts.

According to the Tax Foundation, Sanders’ tax plan would harm the American economy by reducing gross domestic product (GDP), capital investment, wage rate and overall employment. The implicit support of Sanders’ expansive plan by voters in the New Hampshire Democrat primary is not surprising given that exit poll results show income inequality is the top concern of New Hampshire Democrats. The state levies no estate tax, sales tax, or personal income tax, and the static impact of the Sanders plan is a significant net increase in the nation’s personal, payroll, corporate and estate tax burden. Further, support for Sanders’ plan among Democrat primary voters is congruent with the 78 percent of New Hampshire voters who said they want tax increases on filers making $250,000 or more. However, the results of significant tax increases likely would not generate the revenue projected, as more individuals and businesses would leave the state at a faster rate than they are now, which follows the trend of Northeastern residents moving to low-tax states.

Similarly, Republicans who supported Trump in the New Hampshire primary may also be surprised to learn his plan doesn’t fix their economic concerns. Trump’s plan cuts revenue, but does so in a way that doesn’t maximize economic growth. His plan includes eliminating the economically damaging death tax, which parallels New Hampshire policy, and creating a simpler and generally smaller set of personal income tax brackets. Taxes on businesses, capital gains and dividends are also reduced. However, the elimination of the carried interest rate punishes and disincentivizes the kind of capital investment that helps economies grow. Trump’s plan for foreign-earned corporate income is also established on shaky ground. If his desired top marginal rate of 15 percent can’t be passed, then eliminating the deferment on corporate income earned abroad, even with a foreign tax credit, would continue the exodus of American corporate capital.

Based on taxes alone, Democrat voters chose an expensive socialist plan that would dramatically raise taxes on all New Hampshire residents but more than likely fail to generate the revenues projected. Republican voters chose a tax plan that cuts revenue but still doesn’t solve Granite State voters’ concerns of economic security and less government spending.

Of course, most voters don’t choose a candidate based solely on their tax plans, and pundits will speculate the various reasons New Hampshire went for Sanders and Trump. However, if the Granite State primary results are a forecast of what’s to come, voters should prepare themselves for tougher, if not more unpredictable, fiscal times.

Joe Horvath and Kati Siconolfi are legislative analysts at the American Legislative Exchange Council (ALEC) Center for State Fiscal Reform. ALEC is the largest nonprofit association of state legislators dedicated to the principles of limited government, free markets and federalism. Learn more about ALEC at www.alec.org.


In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A …

+ Tax Reform In Depth