Many of our town warrants have a similar article this year calling on our elected officials to withdraw any pledge they might have made to oppose any broad base tax. This is not put forward by any friend of the taxpayer. It is most likely one of the many groups that exist on the public largesse. More importantly, you should be armed with reasons why the broad based taxes are wrong for New Hampshire.
Property Tax is usually the largest tax that most citizens pay. It has grown so much because of school spending. School spending in many towns is two thirds of the property tax. The state and federal contributions together make up between 40 and 50% of the school revenue, but that is never enough. For the past two decades, school spending has doubled every ten years. That’s about an 8% annual increase. Controlling school spending is the key, not seeking other revenue.
New Jersey had very high property taxes. A governor promised the people if only you would pass an income tax, we could reduce the property tax. They passed it several years ago in New Jersey. Now that state has both the highest income tax and the highest property tax of the 50 states. A similar result has happened in Connecticut and Maine, no real reduction in property taxes.
State budgets need reliable revenue. Income taxes do not provide this. When times are good incomes grow, so do state revenues that rely on same. Less state spending is needed in good times. But if the money is there it will be spent. New programs are created with new constituents who feel that they are entitled. Eventually, there is the inevitable downturn. More state revenue is needed to pay for programs like unemployment, welfare, Medicaid, and so on. But the revenue is vastly reduced since the higher incomes are often the first to see losses. This actually happened in Colorado in the 2001-2002 time frame. Colorado depended for 60% of its revenue on an income tax. Total revenue fell by 19%. With all the fixed costs in state government, such a loss represents a disaster. Bond rating agencies like to see “Rainy Day Funds.” Those funds should be a reflection of the volatility of the state’s revenues. For New Hampshire, we have been satisfied with attempting to achieve 5% for that fund. This is an approximation of what we have experienced in year-to-year revenue fluctuations. It has always been difficult to put away that much money in the good years. To attempt to try for any amount larger would be an insurmountable task. I don’t see how any government could ever achieve 19%.
Our Department of Revenue handles about 200,000 tax reports annually for all types of revenue. There are over 600,000 federal income tax filers in New Hampshire. If the Department of Revenue got into the income tax business you can see that they would have to vastly expand. Our constitution says, “Each man must pay his fair share.’ That has always been interpreted to mean no graduated tax, the same rate for all. No relying on a percentage of federal as some states do. Our filing would be more complicated.
As our surrounding states passed sales taxes, more and more of their citizens came to shop in our state. Our border towns and cities have particularly benefited. A survey a few years ago found that retail jobs were 12% of our workforce as compared with 9% in our neighboring states. If we passed a sales tax even close to our neighbors’ rates, many jobs would go away as we lost that out-of-state trade. Stores would close and as many as 30,000 jobs could be lost just in retail, a lesser number in wholesale. These jobs are frequently an entry level job for our youth as well as part-time for mothers and retirees. What would replace them?
Our mix of over twenty revenue sources has kept our revenue less volatile than almost all other states. It would be counterproductive to change now. Also our property taxes for home owners are only 50% of the base. The rest is made up of business property and second homes. If we saved a billion dollars in property tax and replaced it with income tax, the homeowners would be disadvantaged. They would be saved only half of the billion, but they would have to make it up without help from the businesses, which already pay business profits taxes and/or business enterprise taxes, and the second home owners, who already pay the income tax at their first residence. That saving for home-owners could lead to an average doubling of their total taxes.
Please support the pledge.
Ken is a long term republican state legislator from Kingston spending years on Finance. Ken is also the Rockingham County Republican Chairman