How Downshifting and State Tax Cuts Affect Affordability

Tax Cut or Tax Shift? The Next Piece of New Hampshire’s Downshifting Puzzle

In a recent NH Journal opinion piece, House Majority Leader Jason Osborne and Senate Majority Leader Regina Birdsell argued that rising property taxes are not the result of state downshifting. Their explanation was much simpler: “Your local tax bill went up because your local officials voted to spend more of your money.”

They went further: “If ‘down-shifting’ were real, that would be impossible.”

That argument is politically useful, but it leaves out the central question: what happens when the State reduces its own revenue while local responsibilities remain?

The first piece in this series, explained what downshifting means. Downshifting occurs when the State reduces its financial participation in costs that cities, towns, and school districts still have to pay.

This piece looks at the next part of the puzzle: state tax cuts.

A state tax cut may sound like relief. Sometimes it is. A targeted tax change can serve a legitimate public purpose, such as expanding child care capacity, encouraging research and development, supporting housingproduction, or reducing narrow administrative burdens on very small businesses.

But not all tax cuts are the same.

When the State cuts revenue without a clear policy goal, without a measurable public benefit, and without a plan for maintaining support for schools, municipalities, roads, bridges, public safety, and other services, the result is not necessarily tax relief.

It can become tax shifting.

The bill still has to be paid. In New Hampshire, where local property taxes carry an unusually heavy share of public costs, that bill often lands closer to home.

The Policy Test

Before cutting state revenue, lawmakers should be able to answer a few basic questions:

• What public purpose does this tax cut serve?

• Who benefits?

• How will we measure whether it worked?

• What public capacity are we giving up?

• If state revenue falls short, what happens to schools, municipalities, infrastructure, and property taxpayers?

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Those questions matter because state and local finance are connected.

If the State reduces taxes and then has less capacity to fund education, municipal aid, transportation, school building aid, retirement costs, or infrastructure, local communities are left with fewer choices. They can cut services, delay projects, reduce programming, or raise more revenue locally.

That is especially hard on property-poor communities.

A high-value community can often absorb cost shifts more easily because it has a stronger tax base. A property-poor community may need a much higher tax rate to raise the same amount of money. That widens the gap between communities.

It also weakens the economic argument for broad state tax cuts.

Supporters often argue that cutting state business taxes promotes growth. Sometimes targeted tax policy can support a legitimate economic goal. But if the practical result is higher local property-tax pressure, reduced school programming, deferred infrastructure, and weaker local services, the state may simply be moving costs from one column to another.

For many businesses, property taxes are also a cost of doing business. So are poorly maintained roads, weaker schools, fewer local services, and communities that struggle to attract and retain workers.

A state tax cut that makes a community less able to maintain the foundations of growth is a shift in who pays, not a growth strategy.

Recent Tax Cuts and the Push for More

New Hampshire has already made significant reductions to major state revenue sources over the last several years.

The Business Profits Tax was reduced from 8.5% to 7.5%. The Business Enterprise Tax was reduced from 0.75% to 0.55%. The Meals and Rooms Tax was reduced from 9% to 8.5%. The Interest and Dividends Tax was phased out and repealed.

Those changes reduced state revenue capacity.

Supporters argue that these cuts improved competitiveness. But that claim should be tested against actual outcomes, not assumed as an article of faith.

In the most recent legislative term alone, at least a dozen bills sought to reduce state tax liability through rate cuts, repeals, exemptions, expanded deductions, or tax credits. Some had identifiable policy goals, such as child care, research and development, or infrastructure. Others were simply broad efforts to reduce or eliminate state taxes.

A child care tax credit is tied to a policy goal. A research and development tax credit is tied to a policy goal. A targeted infrastructure credit can be evaluated against a policy goal.

But repealing the Business Profits Tax, repealing the Business Enterprise Tax, repealing the Communications Services Tax, or creating automatic tax-cut triggers without a service plan is different. Those proposals are less about solving a defined policy problem and more about reducing state revenue as an end in itself.

When revenue reduction becomes the goal, the likely result is pressure to cut services later.

And when the services affected include state support for schools, municipalities, roads, bridges, and local aid, the pressure does not vanish. It moves down to local budgets.

That is the connection to property taxes.

Temporary Revenue Should Not Justify Permanent Tax Cuts

The State’s current revenue picture also needs context.

New Hampshire’s 2026 Tax Amnesty Program brought in far more money than expected. The program allowed taxpayers with overdue obligations to pay past-due taxes without penalties and with reduced interest.

That helped the State’s short-term revenue position.

But amnesty revenue is not the same thing as recurring economic growth. It is unusual, temporary, and partly accelerated. Some of that money may have been collected later through audits, collections, or compliance activity. Some of it represented overdue taxes, not new growth in the tax base.

If temporary or accelerated collections are treated like recurring revenue, the State can create the illusion of a stronger long-term fiscal position than actually exists. That can lead lawmakers to enact permanent tax cuts based on a one-time event.

HB 155 illustrates the concern.

The bill raises the Business Enterprise Tax filing threshold and creates future automatic BET rate-cut triggers if certain revenue conditions are met, including surplus business tax revenue.

The risk is not hard to see. A temporary spike in business tax collections can make the State appear better positioned for permanent tax cuts than it really is. If one-time or accelerated revenue is counted the same way as recurring economic growth, the State risks using temporary revenue to justify permanent reductions in tax capacity.

That is not sound budgeting.

It is especially concerning when the trigger only works in one direction. If revenue exceeds the target, the tax rate can be cut. But if revenue later falls below expectations, there is no automatic mechanism to restore the rate, replace the revenue, or protect schools, municipalities, infrastructure, and local taxpayers from the consequences.

That shifts responsibility to a future legislature.

The current legislature gets to claim credit for cutting taxes. A future legislature is left with the politically difficult task of finding new revenue, reducing services, delaying investments, or pushing more pressure onto local property taxpayers.

Before cutting state revenue, lawmakers should ask whether the surplus is recurring, whether the tax change serves a clear policy goal, and what happens if future revenue falls short.

A responsible tax policy should not be built on a temporary windfall or a one-way trigger.

The Bottom Line

Property taxes do not rise for only one reason.

Local spending decisions matter. Voters, select boards, school boards, budget committees, and town meetings all play a role.

But state policy matters too.

When the State reduces revenue, eliminates aid, limits support for local costs, or cuts taxes without a clear policy test, it affects what happens locally. Local governments still have responsibilities. Schools still have students. Roads still need maintenance. Bridges still need repair. Public safety still needs funding.

If the State steps back, local taxpayers often step in.

That is the downshifting puzzle.

And it is why every state tax cut should be judged by more than whether it sounds good in a press release.

The real question is: does it solve a public problem, or does it simply move the bill?