Tax Justice Digest stories about New Hampshire
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
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.
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
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.
Kansas Governor Kathleen Sebelius this week again voiced support for a 50 cent cigarette tax hike, proposing that the revenue be dedicated to expanding health care coverage to more low-income Kansans. This story should sound familiar, as numerous tax-phobic states in search of ways to pay for popular government services have recently turned to the cigarette tax.
The benefits that a higher cigarette tax would produce in terms of reduced smoking deaths and improved public health are well-documented in the recommendations included in a recent report from the Kansas Health Policy Authority. But it’s the tension such an arrangement would create between efforts to reduce smoking, and efforts to fund health care, that is controversial.
Arkansas this year attempted to pass a similar cigarette tax hike dedicated to funding a new health trauma system. South Carolina pursued similar legislation (eventually vetoed by the Governor) that was designed to direct new cigarette tax hike revenues into a popular health-care expansion.
In each of these cases, legislators were seeking to fund vital programs (each of which naturally increases in cost over time) with a revenue source that is sure to decline with time. South Carolina briefly considered one interesting approach to this problem (indexing the amount of its tax to a measure of medical cost inflation) but that proposal was ultimately dropped from the final bill.
Sustainability issues arise not only from inflation, however, but also from decreases in the popularity of smoking, and increases in the incentives to purchase cigarettes in low-tax areas. This latter component of the sustainability problem, in particular, has received a good bit of attention as of late.
With cigarette tax rates having increased substantially in many parts of the country, the rewards to smokers associated with shopping in low-tax areas have grown. A recent study by Howard Chernick entitled “Cigarette Tax Rates and Revenue” found that a 10% increase in the cigarette tax rate of one state can boost the revenue collections of a neighboring state by about 1%. Maryland provides one stark example of this phenomenon, where a recent tax hike has yielded significantly less than expected as a result of cross-border cigarette purchases and smuggling. The experience of New Hampshire, however, may suggest that this point has only limited applicability (see next story).
Here's the headline: "Tobacco Retailers Pressed to Sell More to Stop Tax Hike." Odd isn't it? New Hampshire retailers are in a panic, hoping to sell enough cigarettes to avoid a quarter cigarette tax increase from taking effect. Last year grocers lobbied hard against an increase in the state's cigarette tax, saying that they "could bring in the same revenues if given a chance to market the state's lower cigarette prices to neighboring states." Lawmakers heard their pleas and agreed to put the tax increase on hold to see if sufficient revenues were raised. In fact, a marketing campaign was said to be in the works.
You'd have to be living under a rock to not know that smoking can kill, but New Hampshire residents are being encouraged to purchase more cigarettes. Meanwhile, legislators cannot take action to improve health by discouraging smoking because they depend on this tax revenue to fund necessary services. This is what happens when states depend on excise taxes that don't grow with the economy and refuse to raise money in progressive ways. The government is placed in the odd position of encouraging whatever is being taxed, even if it's harmful.
With state budget shortfalls having recently become so prevalent, it has been interesting to watch how different states have chosen to address their budgetary woes. Fortunately, a collection of influential groups in Michigan, including the Michigan League for Human Services, is seeking to fill their state’s budget gap with a combination of policy changes much better thought-out than the regressive band-aid fixes proposed in New Hampshire (cigarette tax hikes) or California (lottery revenues). The plan, proposed by the Michigan League for Human Services and backed by a slew of influential groups, proposes to raise roughly $400 million through a series of relatively small changes, each of which already gained approval at some point from either the Governor or the legislature in the 2005 or 2007 legislative session.
Among the proposed list of reforms is the elimination of numerous unjustified sales tax exemptions. Vending machine snacks, international phone calls, and purchases made at prison stores are among the items that would be subject to the sales tax under the proposal. Another major component of the proposal would decouple state business depreciation rules from the federal rules, as was advocated in an earlier Digest piece.
While certainly not a comprehensive list of what could be done, the proposal is notable for its eclectic approach that simultaneously aims to improve efficiency and boost state revenues. States considering unimaginative hikes in consumption tax rates or damaging cuts in public services would do well to instead follow the lead of this proposal and seriously examine what kind of needed tweaks to their tax systems could boost revenues.
Several weeks ago, we told you of a potentially interesting development in New Hampshire -- an effort by the Granite State Fair Tax Coalition to have voters in nearly a hundred towns call upon their elected officials to forego the so-called “Pledge.” The Pledge is a vow many New Hampshire lawmakers have taken to oppose the creation of a broad-based income or sales tax.
The effort to have voters voice opposition to the Pledge has met considerable success. As the New York Times reported last week, resolutions sponsored by the Fair Tax Coalition passed in close to 70 percent of the towns in which they appeared. This hardly means that
