POLITICS

Spend money to make money
R&D tax credit needed in N.H.

Small businesses are the life's blood of the New Hampshire economy. They are the economic engine that drives whatever financial prosperity this state has.

The U.S. Small Business Administration estimates there are about 142,400 small businesses operating in New Hampshire. The SBA defines a small business as one with under 500 employees, and here on the Seacoast, that means most of firms we deal with on a daily basis are small business.

Small businesses are the major source of employment in the state. The SBA reported that in 2003, small employers provided almost 305,000 jobs. This does not include self-employed individuals who totalled about 77,000 in 2004, according to the SBA.

Many of these small businesses are minority- and women-owned firms that offer these categories of employers opportunities for entering the economic marketplace.

In view of the monetary and employment contributions small businesses make to the economic viability of the state, it is counter-intuitive to note just how little state government does to help these organizations. In a state without a secure revenue stream, such as an income or sales tax, it is certainly difficult to offer incentives for small businesses to continue to grow and prosper, but it is clearly something that must be done.

Finally, this year, it appears there will be a research and development tax credit available against a company's business profits/business enterprise taxes. Senate Bill 134 passed the Senate last month and is now under consideration by a House committee, which is expected to report the bill out by the end of this month.

Research and development are key to not only making New Hampshire's small businesses competitive in the world market, but also to holding on to some of the Granite State's best and brightest college graduates who are being drawn to other states where incentives for R&D, as well as other things, allow for greater creativity in the workplace and higher salaries.

But even the proposed New Hampshire R&D credit is being done on the cheap because of the lack of state funds and the unwillingness to cut into business tax revenues. SB 134 calls for the maximum cumulative credits to amount to only $1 million.

That is simply a drop in the bucket when it comes to supporting the small businesses that support the state.

The "New Hampshire Advantage," as politicians refer to it, mostly involves the fact that there is no state income or sales tax. They claim it is what entices larger businesses to relocate "" and smaller businesses to expand "" here.

However, if you talk to owners of both small and large firm, you will quickly understand that as important as the tax atmosphere is in New Hampshire, of equal importance is a highly skilled and educated work-force available to those companies. Without offering more incentives to New Hampshire companies, such as the R&D credit, that work force is slowly being drawn to other areas of the country where skills and education can be put to more creative uses and where it can work on cutting-edge technology.

State legislators must understand that investments must be made, particularly in the small business sector, if the state and its inhabitants are to prosper economically in the long term. In short, you have adhere to the old adage that has proven its truth time and time again: that you have to spend money in order to make money.

In the context of state government, that means the possibility of cutting current revenues through incentives in order to secure future economic growth that will result in higher revenues in the future. Without that understanding, New Hampshire will rapidly become a retirement state with a low-income work-force geared to supporting the service industry needs of the growing number of retirees moving in, and that could slow economic growth to a virtual standstill.

Shir Haberman is the business and political writer at the Portsmouth Herald. He can be reached at shaberman@seacoastonline.com