PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

State Spotlight: New Hampshire Governor Chooses Sound Economics Over Wage Hike Burdens

By at 4 September, 2019, 5:06 pm

 by Raymond J. Keating-

Small Business Policy Index 2019: New Hampshire ranked 27th among the 50 states.

 SBE Council’s “Small Business Policy Index 2019” ranks the 50 states according to 62 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

 Small Business Tax Index 2019: New Hampshire ranked 25th among the 50 states.

SBE Council’s “Small Business Tax Index 2019” is a subset of the Small Business Policy Index report, ranking the states according to a wide array of tax measures, including income, capital gains, property, death, unemployment, and various consumption-based taxes like state gas and diesel levies.

New Hampshire’s Governor Chris Sununu took the bold step of vetoing a piece of legislation because it made no economic sense. If only more elected officials would operate in such a fashion, economic, income and job growth would be far more robust as a result, whether in localities, states or nationally.

In fact, New Hampshire itself has room for improvement on the policy front, but Sununu’s decision to veto a state minimum wage increase – which would have taken this government-mandated wage from $7.25 to $10.10 in 2020 and $12 in 2022 – was a solid decision, with economics winning out over pandering politics.

SBE Council’s “Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth” ranks the 50 states according to 62 different policy measures, including assorted tax, regulatory and government spending measures. New Hampshire ranked 27th among the 50 states. And the state earned the 25th position on the “Small Business Tax Index 2019,” which is a subset of the larger Policy Index, whereby the states are ranked just on tax measures.

As one might expect from a state positioned in the middle of the pack, New Hampshire has a few clear positives, along with some notable negatives. On the positive side, New Hampshire has no individual personal income and capital gains taxes, and no death tax. Those are big plusses, along with, for example, a very low consumption-tax burden and the lowest crime rate.

As for negatives, though, New Hampshire actually has the highest state property tax burden; and fairly high corporate income and capital gains taxes.

However, regarding the minimum wage, a positive – that is, the state not imposing an added minimum wage burden above the federal mandate – could have been moved into the negative column. Indeed, consider that over the period of time between publication of the “Small Business Policy Index” for 2019 and the 2018 release, 19 states increased their state minimum wage mandates. Those states chose higher burdens on small businesses over sound economic policymaking.

It’s important to keep in mind that individuals’ earnings in the market are determined by their productivity, and the supply of and demand for various skills. Government cannot simply wave a magic wand and raise pay without consequences and costs.

When it comes to raising the minimum wage, those costs come in the forms of reduced work opportunities for young, inexperienced, and/or low-skilled workers; as well as businesses having to deal with higher costs, whether through increased automation, eliminating jobs and reallocating responsibilities to other employees, and/or suffering reduced profitability. Obviously, such burdens hit small businesses hardest.

Sununu noted the economic impact of a minimum wage increase in his veto message, which said in part:

“… according to studies, other states and cities that have artificially raised the minimum wage have seen take-home pay decline because minimum wage workers have their hours cut or their jobs terminated. In Seattle, according to research published by the National Bureau of Economic Research, employees in low-wage jobs saw hours worked decrease by around 9 percent, resulting in total payroll for such jobs decreasing by an average of $125 per month per job in 2016. The Wall Street Journal recently reported that businesses in New York City are “cutting staff, eliminating work shirts, and raising prices” after the $15 minimum wage went into effect. In Maryland, research commissioned by a Montgomery County commissioner indicated that increasing the minimum wage to $15 an hour would result in an aggregate loss of $396.5 million in the county by 2022. A law can force an employer to pay a minimum wage, but it cannot force an employer to hire or retain a worker at that wage.”

The politically expedient thing to do would have been for Governor Sununu to run with the pack and hike the minimum wage. Thankfully for New Hampshire’s small businesses he did not do that. Governor Sununu deserves a “profile in economics courage award” for protecting small businesses and the wage hike.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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