Bradley D3 NH Senator - Time to Talk Taxes

The Senate Finance Committee last week reported its version of the state operating budget. It increases overall spending by about a billion dollars or approximately 10% after similar increases in the last budget enacted two years ago. This budget depends upon $185 million of direct revenue from slot machines as well as hefty tax hikes on businesses in the middle of a deep recession.


Slot machines at race tracks in Salem, Seabrook, and Belmont is a proposal that has been around a long time. The Finance Committee approved up to 13,000 slot machines and two north-country facilities that are estimated to produce $185 million in revenue. Gambling is not a partisan issue and has determined support because of the added revenue, and determined opposition because of social implications and the change in the fabric of our state it could create. I continue to have concerns about gambling.


While bettors may be laying long odds that gambling will ultimately pass, it is almost certain that taxes are going up. These looming and precipitous tax hikes are due to the majority party in control of both the House and Senate which has shown no willingness to cut spending as families and businesses are doing to survive the harsh economy.


Here are the major tax proposals being bandied about in Concord.


5% tax on Capital Gains: Passed by the House but rejected by the Senate Finance Committee. Among the worst of all proposals, taxing capital gains is directly harmful to business growth, investment, risk taking, and productivity. It taxes gains on everything from the sale of property, retirement assets, and small businesses – the backbone of our economy. House budget writers assume $75 million in revenue, but they should look to what has happened in Washington when capital gains have been increased and decreased.


Presidents Kennedy and Clinton supported capital gains reductions and revenue increased. When President Reagan was forced by Congre ss in 1986 to accept a 40% increase in the capital gains rate in order to get his other tax proposals enacted, revenue declined. In fact four years after the 1986 capital gains rate increase from 20% to 28%, revenue to the Treasury was lower. Imagine that---higher taxes actually decreased revenue. That must be the definition of success!


In 2003 when Congress voted to lower the capital gains rate from 20% to 15% (one of the most important votes I cast in Congress), revenue more than doubled. Further, in 2003 when that overall tax reduction legislation passed, the unemployment rate was 6.3%. Four years later, the unemployment rate was 4.4%. Both revenue and jobs had increased. Yet today, in both Concord and Washington, some want to increase this tax despite the overwhelming evidence that it will cost both jobs and revenue.


I was recently speaking with a business owner who succinctly told me that if New Hampshire passed a capital gains tax, the tax climate for his business would be worse in New Hampshire than in California where his company also has interests. It is time to dismiss this tax summarily, which to its credit, the Senate Finance Committee did. However the nails have not been pounded into the coffin, as Capital Gains could be resurrected in a committee of conference.


Elimination of the BET Credit against the BPT: The Business Enterprise Tax is a .75% payroll tax employers pay on employees salary. Since implementation of the tax nearly 15 years ago, employers could take their BET obligations as a credit against the Business Profits Tax. New Hampshire’s General Fund depends on these two taxes for fully 25% of its tax revenue. From the smallest to the largest New Hampshire employers, businesses pay more than their fair share of taxes, without question.


Because of the aversion to cut spending, the revenue from the Capital Gains proposal had to be replaced. Thus, the Senate Finance Committee has recommended elimination of this tax credit which would c ost businesses $80 million. This $80 million tax hike is a double whammy for businesses already facing many millions in hikes for the employer costs of unemployment insurance.


Jim Roche, President of the Business and Industry Association said repeal of this tax credit “exacerbates an increasingly uncompetitive business climate” and said the “economic implications of this trend are alarming.” Roche cites New Hampshire’s recent ranking of 25th in the Small Business and Entrepreneurship’s 2009 Business Tax Index. This is one race to the bottom New Hampshire simply cannot afford to win.


Unfortunately, however, the majority of the committee supported this tax hike on businesses which will make it far more difficult to get our economy on track. Nearly 50,000 of our friends and neighbors are out of work. If this tax hike survives, they are far more likely to stay out of work.


Increasing the Rooms and Meals Tax: Proposed by Governor Lynch, passed by the House. Now it has the support of the majority of the Senate Finance Committee. This proposal would raise the tax on the hospitality industry by nearly 10%. At a time that people, including visitors to New Hampshire, are cutting back discretionary spending, hiking this tax will only make a tough business climate more difficult for restaurants and hotels. No area of our state will be more impacted than the Mount Washington Valley. Business owners in that region have told me unequivocally that New Hampshire will be less competitive for tourist spending for vacations, weddings, tours, and conventions. This is a $40 million mistake.


Increasing the Tobacco Tax: Proposed 45 cent hike by the Senate Finance Committee. This tax hike is estimated to raise $75 million but would be the fourth tobacco tax hike in five years. Smokers have to be saying enough already. Furthermore, our budget already counts on $160 million in revenue from this tax – a large portion coming from cross border sales of tobacco. A hike of this magnitude could mean the expected revenue gains go up in smoke as our competitive position is undermined.


All told these three tax hikes will cost $195 million and these are only the big three. There are numerous other tax and fee hikes on vehicle and boat registrations, tolls, salt water fishing licenses, septic and subdivision permits, and vanity license plates. A fund paid into by doctors to keep a lid on medical malpractice rates will be raided to the tune of $110 million virtually guaranteeing a lawsuit. State of New Hampshire retirees will see higher costs for their health care. Perhaps most insidiously, property taxpayers get badly dinged by increased retirement costs and a gaping $50 million hole in revenue sharing.


The New Hampshire unemployment rate stands at 6.4% and residents across the state are struggling to pay their mortgages while they worry about keeping their jobs. Now apparently the Governor is considering forcing the Real Estate Transfer tax to apply to mortgage refinancing – at a time people are refinancing to try to keep their homes. OUCH!


People naturally are asking why state government spending grew so much in the previous budget. Why is it projected to grow so much more in this budget? They further ask why can’t state government do what they are doing – cutting spending. That is the answer to this budget predicament.


On Wednesday, the Senate will be in session and will vote on all these tax proposals passed by the Senate Finance Committee. Let's hope they fail.