Why the Business Enterprise Tax is Good Tax Policy

Today, the Union Leader ran a story on the Tax Foundation’s latest State Business Tax Climate Index (pdf) (Disclosure: Wendy and I are the original co-creators of the Index).  Unfortunately, the Tax Foundation mis-characterizes the Business Enterprise Tax (BET) as a “modified gross-receipts tax” and partially blames it for New Hampshire’s low corporate income tax rank.

The BET is technically an “income-additive value-added tax” (pdf) that only taxes consumption and is model for good tax reform.  When it was first enacted in the early 1990s, the BET improved NH’s corporate tax climate because it was used to reduce/eliminate many other business taxes.  For example, the corporate income tax rate was lowered to 7 percent.

However, since then various money-grabs by the state has raised the corporate income tax rate back to its current nose-bleed level of 8.5 percent.  It’s not the BET that is the problem, it is over-spending by the state government.

Bill Ardinger, one of the architects of the BET, wrote an excellent article summarizing the ten benefits of the BET as a model for tax reform which are shown below (read the whole article here):

  1. It is an economically neutral tax.
  2. It is a simple tax to compute and administer.
  3. It is a fair tax.
  4. It is a comprehensive tax.
  5. It is deductible for federal income tax purposes.
  6. It was enacted as a revenue-neutral tax reform.
  7. It avoided an “all at once” academic approach to tax reform.
  8. It addresses the jurisdictional challenges to traditional tax systems resulting from changing economies and technologies.
  9. It is a financially stable tax.
  10. It is a politically stable tax.

Ardinger has also pitched the BET to other states as model tax reform legislation.  Here is his presentation (pdf) to the Pennsylvania Business Tax Reform Commission.