TAX NEWS - JUNE 2010
New Hampshire Tax: State budget impasse a backdrop for tax debate
The Coalition — and Democratic lawmakers who agree — are on one side of what has become a perennial debate in New Hampshire politics.
On the other side are Republicans, who argue the problem is excessive spending on an overly large government.
People don't want the state to find new taxes, Republican Senate Leader Peter Bragdon said.
"They're clamoring for the state to act in a responsible manner and stop the borrowing and spending," he said.
The Milford lawmaker added that some in the Legislature think Democrats, currently the party in power, have an ulterior motive by overspending — getting the state to adopt a sales or income tax.
The coalition says the public is on its side. It has been making its case for several years. It has taken its arguments to voters at 114 town meetings or elections, and about 75 percent of those communities have weighed in by saying they want to consider a new revenue system, said Laurel Redden, president of the coalition's board.
Yet the public's will is not the same thing as what lawmakers want, she said.
"The popular notion is this is New Hampshire — it's "Live Free or Die" — and we are the land of essentially the free lunch," Redden said, but "the economy is so lousy that we're getting to the point where it's affecting people a little further up the income scale than it was. So people's eyes are open a little wider than they used to be."
In Concord, however, there's anything but unanimity on how the state should handle its finances. Later this week lawmakers will go into a special session in hopes of closing a nearly $300 million shortfall after a series of spending cuts and tax ideas fell flat, along with efforts to pass expanded gambling.
House Finance Chairwoman Marjorie Smith, D-Durham, said there needs to be a change to a philosophy that tries to limit state spending.
"You have to begin with one concept, and that is structural deficit. In a structural deficit there's not enough revenue to pay for essential and identified services, and when that happens, it usually does not happen deliberately," she said. "However, in New Hampshire, it is a deliberate policy. It is central to our financial policy in this state, to make sure that there is always downward pressure on expenditures."
Sen. Lou D'Allesandro, D-Manchester, who has been trying to pass expanded gambling for years, said it's not time to tax people. He said states with broad-based taxes are in no better shape than New Hampshire.
"We should never throw aside nontaxable revenue-producing measures, and that makes sense to me, particularly in a down economy," he said. "Once you've looked at all of that, if you want to look at restructuring, you can always do that."
Redden said the coalition is not pushing a sales or income tax and doesn't believe there's "one special magic bullet" to even the inequity. Instead, the group has proposed a list of questions that should be asked about proposed changes, including: Is ability to pay taken into account? Does it keep New Hampshire businesses competitive? Do out-of-staters pay their share?
Smith said a sales or income tax is not the only choice.
An alternative is an estate tax that's structured to "provide protection for small businesses and small farmers and for most, almost all, of the people of the state," she said. "But for those who have an increased ability there would be some money coming to the state."
Before anything, Redden said, the pledge state lawmakers routinely sign to oppose new taxes in New Hampshire has to be defeated. The Americans for Tax Reform promotes the "Taxpayer Protection Pledge," which has decades-old roots in the state, going back to Govs. Meldrin Thomson and Hugh Gregg.
Several activists say the pledge, largely viewed as necessary for politicians to take in order to be widely electable in the Granite State, hinders the state's growth and prevents politicians like Gov. John Lynch, who has threatened to veto a broad-based tax, from seeking a change.
"I also don't think that it is a discussion that is possible under the current political environment, but one that can begin as soon as finding a gubernatorial candidate for 2012, presuming Lynch doesn't go for a fifth term then," said Dean Barker, founder of the progressive BlueHampshire.com. "Whoever emerges as a Democratic candidate in the post-Lynch era would likely have to reject pledge politics to earn the trust of the progressive vote."
The coalition also argues that a heavy reliance on property taxes, to the exclusion of broad-based taxes such as on income, disproportionally affects those who earn the least. To make its case, the coalition cites a 2007 study by the Institute on Taxation & Economic Policy that shows the state's current revenue system does not take into account people's ability to pay.
The study showed taxpayers on the bottom 20 percent of the wage ladder pay about 5.5 percent of their share of income, while those in the top 5 percent pay between 1.5 to 3.2 percent of their income. Those on the bottom rung earn on average less than $25,000, compared to the $204,000 or more that people on the top rungs are earning.
Redden said 60 percent of all state and local revenue comes from property taxes, with the remaining amount shouldered by the business community.
The reliance on property taxes is a relic from the days the state relied on an agrarian economy where property dictated people's ability to pay, she and others say.
"We're left with vestiges of government that were developed with all the best intentions to address the problems of the past," said Durham Town Administrator Todd Selig, chairman of the board of directors for the New Hampshire Center for Public Policy Studies.
It's clear public officials need to rethink how government gets money to provide services, he said.
"We can't just close our eyes as a state and hope these problems go away," he added. "And the solution lies either in decreased spending or increased revenue, and where it will take time for the traditional revenue sources upon which we've relied on to return to previous levels, increased revenues means new taxes, whatever those new taxes will be."
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