New Hampshire joins the majority of states that have patched next fiscal year’s budget gaps with a cuts-only approach.  Democratic Governor John Lynch will allow the budget to go into effect Friday, July 1 without his signature, fearing a veto would only lead to a more austere budget than the one presented to him last week (the Republicans have a veto-proof majority in the House and Senate).

The budget contains a long list of spending reductions including cutting higher education funds in half (which will lead to higher tuition), state worker layoffs, and cuts to agency funds. 

The most nonsensical cut included in the New Hampshire budget is a 10 cent reduction in the state’s cigarette tax (dropping from $1.78 to $1.68) and lower taxes on other tobacco products.  Proponents of this tax change argued that a decrease in taxes on tobacco would lead to greater revenue as smokers from neighboring states would be incentivized to cross the border to purchase cigarettes. 

However, as the New Hampshire Fiscal Policy Institute (NHFPI) points out, this change is likely to reduce tax revenue by at least $14 million and as much as $30 million over the next two years.  Their analysis points to data from the state’s Department of Revenue Administration that shows even an increase in the sale of tobacco products would lead to the lower end estimated revenue loss.  NHFPI also questions whether or not a drop in taxes would lead to greater tobacco sales given that the long-term trend in cigarette sales is down.

Based in part on the flawed logic of the tax cut’s proponents and in part to the rushed process to include this provision in the final budget bill, lawmakers failed to account for any revenue loss from the tax cut.  This means that New Hampshire’s new budget is likely already out of balance before the year starts and more spending cuts are likely to come mid-year.

Like most states, New Hampshire is faced with yet another budget shortfall to close in the upcoming fiscal year, this one at roughly half a billion dollars.  The New Hampshire House of Representatives approved a budget in March that closed the gap almost entirely through cuts in spending ($489 million total) including reductions in child-care assistance for low-income families and funding for the state’s university system.  Yet, incredibly, New Hampshire lawmakers are still considering a variety of proposals to cut business taxes.

This week, the New Hampshire Fiscal Policy Institute (NHFPI) published an informative brief explaining how various proposals to reduce the state’s two main business taxes would result in millions of dollars more in spending cuts. 

The brief also debunks myths that lawmakers have promoted to justify cutting business taxes. One is that the state’s business taxes are extremely high. (They are comparable to the national average.) Another is that business taxes influence business location decisions, and that lowering taxes on businesses would fuel economic growth. 

NHFPI also points out that the two business taxes lawmakers are considering reducing, the Business Profits Tax (BPT) and Business Enterprise Tax (BET), make up a relatively small share of the total taxes New Hampshire businesses pay.  The tax that represents the largest share, the property tax, could in fact increase as a direct result of cutting the BPT and BET.  

A state tax cut of any size would likely lead to reductions in funding for local aid, which would in turn force local governments to increase property taxes to pay for local services.

A few weeks back, we surveyed efforts to impose new restrictions mandating that a supermajority of legislators vote in favor of a tax increase before it can become law.   The good news is that most of these efforts appear to have made little progress so far (though Wisconsin did pass a temporary version of this requirement in February).  The bad news, however, is that this idea has now surfaced in New Hampshire.

As we’ve argued before, supermajority requirements are anti-democratic, as they empower a small minority of legislators to block the will of the majority.  These requirements also reduce the ability of elected officials to deal with new challenges as they arise — such as a massive revenue shortfall caused by an economic recession, or an increase in government health care costs.  

Supermajority requirements also make it much more difficult to enact meaningful tax reform since they prevent a majority of legislators from closing a tax loophole unless they either enlarge another loophole, or find a way to reduce tax rates in order to offset the revenue gain.  Simply put, these requirements expand on the already enormous incentives lawmakers have to stuff state tax codes full of special interest goodies.

At the end of the day, voters have the ability to remove their representatives from office if they’re unhappy with their decision to raise taxes.  Lawmakers considering supermajority requirements in New Hampshire, Wisconsin, and other states should put some trust in democracy, and forgo enacting cumbersome limitations on the power of future elected officials.

New Hampshire lawmakers reconvened this week in Concord and one of the top orders of business is closing a budget gap of hundreds of millions of dollars.

The New Hampshire Fiscal Policy Institute (NHFPI) suggests that the magnitude of the state’s fiscal challenges presents lawmakers an opportunity to examine and propose changes to the state’s tax system rather than simply slashing public services.  The group recently released a report that examines the state’s current tax structure and puts forth considerations for improvement.  The report finds two major shortcomings of New Hampshire’s current tax system: the responsibility for paying taxes falls disproportionately on low- and moderate-income households and the tax system does not generate an adequate amount of revenue to pay for the state’s essential public services.
 
Unfortunately, it appears that the GOP-controlled state legislature is poised to propose several tax cuts this year heavily tilted towards businesses and wealthy households that will only serve to make the system even more unfair and inadequate.

Using information from the NHFPI report, including Institute on Taxation and Economic Policy data, an editorial in the Concord Monitor argued against any proposal to cut taxes in a time of fiscal crisis, especially when the result would mean more cuts to core services and higher taxes on low-income households.
 
Moving forward, New Hampshire lawmakers should use the NHFPI report as a tool in determining meaningful policy responses to their state’s fiscal woes.

Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “ tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.

Last weekend, Jon Peacock from the Wisconsin Budget Project wrote an op-ed in the Milwaukee Journal Sentinel that raised some important issues about the need to consider tax fairness in any tax reform discussions in Wisconsin. This issue is especially relevant given recent data from the Census Bureau showing that poverty rates are rising. (Read ITEP's most recent report on this issue.)

The op-ed cited findings in ITEP's Who Pays? that Wisconsin has a regressive tax structure. As the debate over tax reform continues, Wisconsin lawmakers should heed Peacock's advice and improve the state's tax collection process, ensure corporate tax loopholes remain closed, consider broadening the sales tax base, apply the sales tax to products purchased online, and capture a larger share of federal aid.

Taxes are also a hot issue in New Hampshire right now. A forum on tax issues was held by the Rockefeller Center at Dartmouth and the Granite State Fair Tax Coalition and featured panelists from non-profits, think-tanks, and local government. ITEP's  Who Pays? data was discussed during the forum to make the case for real tax reform in the state.

Cathy Silber from the Granite State Fair Tax Coalition summed it up when she said, "We can cut back on services when the need goes up or costs rise, we can raise revenue sources, we can combine these two options, or we can do nothing."

The decision is important given what's happening to families in the state now. The New Hampshire Fiscal Policy Institute's (NHFPI) recent analysis of the new Census Bureau's data finds that in New Hampshire "the poverty rate appears to have climbed 1.8 percentage points over the course of the economic downturn."

ITEP’s new report, Credit Where Credit is (Over) Due, examines four proven state tax reforms that can assist families living in poverty. They include refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits. The report also takes stock of current anti-poverty policies in each of the states and offers suggested policy reforms.

Earlier this month, the US Census Bureau released new data showing that the national poverty rate increased from 13.2 percent to 14.3 percent in 2009.  Faced with a slow and unresponsive economy, low-income families are finding it increasingly difficult to find decent jobs that can adequately provide for their families.

Most states have regressive tax systems which exacerbate this situation by imposing higher effective tax rates on low-income families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve economic security. Although state tax policy has so far created an uneven playing field for low-income families, state governments can respond to rising poverty by alleviating some of the economic hardship on low-income families through targeted anti-poverty tax reforms.

One important policy available to lawmakers is the Earned Income Tax Credit (EITC). The credit is widely recognized as an effective anti-poverty strategy, lifting roughly five million people each year above the federal poverty line.  Twenty-four states plus the District of Columbia provide state EITCs, modeled on the federal credit, which help to offset the impact of regressive state and local taxes.  The report recommends that states with EITCs consider expanding the credit and that other states consider introducing a refundable EITC to help alleviate poverty.

The second policy ITEP describes is property tax "circuit breakers." These programs offer tax credits to homeowners and renters who pay more than a certain percentage of their income in property tax.  But the credits are often only available to the elderly or disabled.  The report suggests expanding the availability of the credit to include all low-income families.

Next ITEP describes refundable low-income credits, which are a good compliment to state EITCs in part because the EITC is not adequate for older adults and adults without children.  Some states have structured their low-income credits to ensure income earners below a certain threshold do not owe income taxes. Other states have designed low-income tax credits to assist in offsetting the impact of general sales taxes or specifically the sales tax on food.  The report recommends that lawmakers expand (or create if they don’t already exist) refundable low-income tax credits.

The final anti-poverty strategy that ITEP discusses are child-related tax credits.  The new US Census numbers show that one in five children are currently living in poverty. The report recommends consideration of these tax credits, which can be used to offset child care and other expenses for parents.

This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “ Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.

Last week, the New Hampshire House of Representatives Committee on Ways and Means held a two-day information session for its members and other interested legislators on the state’s revenue structure, its ability to finance public services, and its relationship with the state’s economy. 

ITEP was one of three national organizations invited to participate and offered its views on the shortcomings of the current system.  In particular, ITEP's Jeff McLynch discussed the consequences that New Hampshire’s imbalanced tax system has for both individual taxpayers and for the state’s budget. (The Granite State and Alaska are the only two states to levy neither a sales tax nor a broad-based income tax.) McLynch explained that adopting an income tax would help not only to mitigate the inequities that low- and moderate-income residents now face but also to address the state’s long-standing structural deficit. 

The purpose of the session was straightforward enough. Legislators nationwide regularly meet to receive testimony from analysts and constituents alike on topics ranging from agriculture to zero-based budgeting. But some opponents of sound and fair taxation reacted as though it were one part of a much larger conspiracy, leading to a couple dozen protestors outside the session and a volley of press releases decrying the involvement of groups from outside the state in the days leading up to the event. 

Indeed, as the Concord Monitor noted, “The committee was careful to ensure that the representatives of both sides of the issue had a chance to air their views. That didn't quiet critics who treat the state's unfair tax structure like previous generations treated suicide, cancer and divorce, something that should not be discussed in public.  But silence allows ignorance to prevail and problems to worsen.” 

To learn more about the various perspectives presented at the session, visit the Ways and Means Committee website.

New Hampshire has long been an outlier in state tax policy. It shares the dubious distinction of lacking both an income and a sales tax with only Alaska. Unsurprisingly, it now faces a serious budget deficit. In response, the state's House Ways & Means Committee has chosen a course of action that deviates from the well-worn public policy path in the Granite State, approving a pair of bills that would generate $95 million in revenue over the next two years and do so in a very progressive manner. Specifically, legislation endorsed by the Committee would impose a 5 percent tax on income from capital gains and would revive the state's estate tax, albeit with a larger exemption and lower rate than existed prior to the tax's repeal in 2002. Needless to say, a comprehensive, broad-based income tax should remain the goal in New Hampshire, but these changes would certainly be steps in the right direction.

One of the few benefits of a crisis as severe as the recession in which the United States now finds itself is that it may lead some to question long-established practices and to ask whether there might be a better way of doing things. In New Hampshire, which faces a budget deficit of several hundred million dollars over the coming biennium, that might mean reconsidering its status as one of only nine states without a broad-based income tax. Indeed, the New Hampshire House Ways & Means Committee last week held a hearing on a bill (H.B. 642, introduced by Representative Jessie Osborne in January) that would both establish an income tax and reduce state property taxes for a large number of homeowners. Consequently, the bill would not only generate close to $500 million per year in new revenue, but it would also make New Hampshire's tax system much fairer.

For more details, read ITEP's testimony on HB 642 here.

People of different political leanings often have quite different views about the proper and necessary role of government in society. Most would agree though (probably almost unanimously, in fact) that one of the essential functions of government is the administration of justice. Yet, in New Hampshire, the state's budget shortfall is so severe -- and the traditional hostility to taxes is so great -- that officials announced this week that the state will suspend jury trials for the month of February. It also will likely leave open one pending vacancy on the Supreme Court and seven existing trial court vacancies (out of a total of 59 such judgeships).

Needless to say, when government begins to falter in performing its most fundamental responsibilities, it is clearly time to re-examine some of the fundamental beliefs, such as the state's long-standing opposition to an income or sales tax, that contribute to such difficulties. Without new thinking, can announcements that local police and fire departments have been disbanded or that school children have been sent home for the year be far behind?

As we've argued in past Digest articles, there are good reasons for relying on gas tax revenues to fund transportation -- at least when an effort is made to offset the tax's stark regressivity. To the extent that the gas tax falls most heavily on those people who drive the furthest distances, or who drive the heaviest vehicles, there are certainly some advantages to the gas tax. But when the people driving the furthest distances are doing so because they can't afford to live near their places of work, for example, that advantage becomes much less appealing. In this light, recent news regarding the funding of transportation has been both good and bad. While states are seemingly beginning to come around to the idea that gas taxes will need to be raised to provide an adequate transportation infrastructure, interest in offsetting the tax's regressivity has yet to pick up steam.

Support for increasing the gas tax has gained some notable momentum in New Hampshire and Massachusetts as of late, and in Oregon, the Governor even included a small gas tax hike in his recent budget proposal. Utah has taken the idea to another level, as top officials are reportedly considering both increasing and restructuring the state's gas tax. In Vermont, however, while raising the gas tax has gotten some attention, the more prominent proposal has been to simply obtain permission from the federal government to continue using federal highway dollars without having to match that money with state funds (of which it has none). But while there are persuasive reasons for considering aid to the states as one form of stimulus for our troubled economy, one has to wonder why some Vermonters are apparently more averse than these other four states to the idea of paying for their own transportation network.

Unfortunately, while there has been an increasing acceptance of the fact that existing gas tax revenues are inadequate in many states, little notice has been given to the idea of offsetting the stark regressivity of gas tax hikes with low-income refundable credits. This idea was recently made a reality in Minnesota, and has been proposed by the Commonwealth Institute in Virginia as well. Notably, eight states already offer similar credits to offset the regressivity of the sales tax (usually designed specifically to offset the tax on groceries). Nineteen states and D.C. offer refundable EITC's, which while not designed specifically to offset regressive taxes, could perhaps be used in a similar matter. In states in need of additional transportation dollars, coupling any transportation related tax increases with the enactment of a low-income refundable credit, or the enhancement of an existing credit, should be a top priority.

As the fiscal contagion spreads among the states, policymakers are clearly casting about for ways to close large and growing budget deficits. In Nevada, Governor Jim Gibbons may be open to tax increases in light of a shortfall that is projected to reach $1.8 billion over the next two and half years, but he has also floated the idea of 'voluntary' payroll reductions of 5 percent. New Hampshire faces an approximately $600 million budget gap over the same period, with lawmakers weighing such options as selling state properties, legalizing gambling, or deferring needed payments to the state pension fund. Florida may have to confront an eye-popping deficit of $6 billion over just 18 months, driving elected officials to think about raiding a variety of trust funds and imposing a 4 percent across-the-board cut in agency budgets.

Of course, these three states have more in common than difficult days ahead. They also share a steadfast refusal to levy a personal income tax. Rather than continue to cast about for half-measures and temporary fixes -- or, worse, policies that would undermine working families' already precarious economic situations -- policymakers in states like Nevada, New Hampshire, Florida, Washington, and Tennessee need to acknowledge the elephant in the room and consider whether the tax policies that brought them to this point are the ones that will carry them to a better future.

Last month we brought you word of a brewing controversy in New Hampshire. Retailers in the state were lobbying hard to delay a cigarette tax hike in hopes that more people would come to the state to purchase cigarettes proving that it wasn't necessary to raise the tax. Unfortunately for retailers, people in New Hampshire and surrounding states seem to have become aware that smoking is bad for their health. Cigarette tax revenues didn't hit the revenue target state officials identified and last week the state's cigarette tax rose by 25 cents to $1.33 a pack. But despite this increase in the tax, smokers who purchase cigarettes in New Hampshire will still pay a lower tax than smokers in neighboring states.