NH Sen Bradley - The Great Tax Debate

The legislative session may be winding down rapidly but the greatest issue of all, the budget, is far from being resolved. The budget debate comes against the backdrop of a distressed economy with high unemployment rates and families and businesses struggling to make ends meet. Will the conference committee on the budget make this situation worse?


Unfortunately, despite our Live Free of Die motto, this debate is not between those who would frugally limit government and those who would inexorably allow it to grow. Rather, it could be called the Great Tax Debate as various factions of the legislature seek to add their preferred tax hikes to a budget bursting with higher taxes and fees.


Why is New Hampshire in such a tax predicament? Some would argue the recession and falling revenues to state coffers is to blame. That's only part of the story however, as Paul Harvey would say ‘the rest of the story’ is that spending in New Hampshire has increased dramatically.


New Hampshire’s current budget allowed total spending of $10.4 billion up from $9.36 billion in the prior budget. The budget the Senate recently passed proposes total spending of $11.6 billion and the House passed budget was only marginally lower. Bottom line: if this spending plan is ratified, total spending will have increased 23.8% over 3 budgets. It is hard to imagine that the average family or business in New Hampshire has seen their income increase by anything approaching that figure.....that is if they have any income left.


What makes these increases even more staggering is that spending is going down in other states around the country. The bi-partisan National Governor’s Association (www.nga.org) recently released a study that highlights an average 2.2% decline in state spending around the nation in 2009. Furthermore, our nation’s governors are recommending additional spending reductions of 2.5% this year. But, not New Hampshire, as there is little disagreement among Democratic conference committee members that total spending should increase by $1.2 billion.


With the exception of a few spending reductions such as closing the Laconia State Prison, the budget debate focuses almost exclusively on new or increased taxes. The House has passed a new tax on capital gains and estates, as well as increases on tobacco products, rooms and meals, insurance premiums, gambling winnings and gasoline. The Senate has passed expanded gambling for additional revenue, as well as increased taxes on tobacco, rooms and meals, and new onerous business taxes. Both budgets have numerous fee increases. Both budgets raid a fund paid into by doctors designed to keep medical malpractice rates in line. The $110 million raid of this fund will trigger an all but certain lawsuit which doctors stand an excellent chance of winning – because in reality it’s their money. More cynically both budgets underfund to varying degrees the state’s historic commitment to assisting towns and cities. So property taxpayers are going to be left out in the cold without a seat in this game of musical tax chairs.


Sound chaotic and controversial? It is and deadlines are looming. The package must first be agreed to by the nine legislators on the Committee of Conference, chosen to resolve the differences between the two budgets. Then both bodies must ratify the final package. But the House previously killed new gambling. Senators don’t like the capital gains and estate taxes. The House wants a gas tax. The Senate is ok with tolls. The Senate wants business taxes, the House would tax insurance premiums. And so it goes --- with precious little talk about decreasing the proposed $1.2 billion total spending increase.

The political reality is: neither plan may prevail. So rumors swirl of a third tax stalking horse waiting in the wings. Details are sketchy, but two new taxes are being discussed behind closed doors.


The first tax proposal would apply the Real Estate Transfer Tax to mortgage refinancing. In other words, as people try to refinance to lower mortgage payments in order to keep their homes, the state would impose an additional tax on them. At a time when Washington and states around us are adopting policies to help keep people in their homes, Concord is considering slapping a new tax on a family’s mortgage pain. The Portsmouth Herald astutely proclaimed this idea “completely off the wall.” Amazingly, proponents of this tax have not heard about what is happening in the financial world. The headline in the June 11th Wall Street Journal proclaimed that interest rate hikes (the result of $2 trillion federal deficits) are not only clouding economic recovery but “choking off a refinance wave.” This would be a very painful tax for struggling NH homeowners. It would undermine recovery of housing prices, and would not likely produce the revenue expected.


The second tax in the closet is an attempt to apply the 5% Interest and Dividend Tax to limited liability corporations. This tax would essentially be an income tax on the owners or partners of many New Hampshire’s small businesses. For business owners this is just a new déjà-vu. They already pay a .75% payroll tax on employee salaries called the Business Enterprise Tax. Business owners pay an 8.5% tax on profits. How does adding yet another levy these taxes make New Hampshire attractive for business?


Jim Roche, the President of New Hampshire Business and Industry Association called this proposal “alarming” and went on to say, “at a time when businesses up and down every Main Street in New Hampshire are cutting expenses and making painful lay-off decisions in response to the worst economic malaise since the Great Depression, it is astonishing to witness state policy leaders on the cusp of making matters worse.”


And just for good measure....the proposed hike in the Rooms and Meals tax may not raise enough revenue and could be jacked even higher.... at a time that one of NH’s largest industries, hospitality, must compete against other states for declining consumer spending.


So what about cutting spending? Those like myself who have proposed across the board cuts have been termed simplistic or just the ‘party of no’. Meanwhile despite the spin, these amendments to reduce spending in both the House and Senate have been defeated on a partisan basis. Yet amazingly, when Senator Sheila Roberge and I proposed a specific cut, ending the subsidy on dog racing that costs taxpayers $1 million, that too, was defeated.


There is no question that cutting spending is difficult. But what’s the alternative – a $1.2 billion increase in spending in New Hampshire while other states are cutting spending? Tax hikes to pay for state spending will only undermine New Hampshire’s competitiveness and ability to grow jobs. Spending cuts may be difficult, but are necessary. Spending cuts are also what New Hampshire individuals, families, and businesses are doing to survive. They are not claiming it can’t be done – they don’t have that option. Budget writers in Concord should take heed.