Debating an Income Tax Fashionable Again for 2012

Charlie Arlinghaus

July 18, 2012

As originally published in the New Hampshire Union Leader

The November election will include a constitutional amendment to ban an income tax. Whether they wish to see a ban written into the constitution or not, the vast majority of voters are opposed to an income tax based on the experience of other states.

The ballot vote on an income tax ban isn’t exactly a referendum because it divides people into three camps. Those who support an income tax will obviously vote no and many who oppose an income tax will vote yes. A third group will be anti-income tax but unwilling to write a ban for all times into the constitution, preferring instead to keep debating the issue every few years. In that sense, support for the amendment will only be a subset of those who oppose a new tax.

Tax systems are complicated and every state tax system includes a basket of taxes. Some supporters believe that an income tax is instantly fairer than any system which might include property taxation. Of course part of the problem is that no one has ever suggested eliminating property taxes and replacing them with an income tax. Every proposal for the last 90 years has involved adding a new tax but leaving in place virtually all the others as well.

A decade ago, Democratic Governor Jeanne Shaheen convened a commission on education funding to look at various new taxes. This wasn’t a conservative group hostile to an income tax (in fact, they were relatively supportive of one) but they found that, contrary to the rhetoric, “the substitution of a comprehensive income tax for local property taxes would diminish the progressivity of New Hampshire’s revenue system.”

I say this only to point out that the fairness or regressivity arguments about taxation are far from settled even on the left side of the spectrum.

Most conservatives are skeptical about a new tax based on the experience of other states. While most states that adopted income taxes did so long ago, the two most recent did so with at least the partial goal of reducing other taxes. And they failed.

New Jersey adopted a tax in 1975 with the proceeds directed exclusively to a property tax relief fund. Yet New Jersey’s property taxes are the highest per capita in the country and show no signs of slowing down.

The more recent experiment was Connecticut. During the 1991 recession, Lowell Weicker pushed through an income tax coupled with reductions to the corporate profits tax and sales tax, although the sales tax was extended to hundreds of new items. The first goal was to raise money but the second was to create a more stable tax system.

One theory, often espoused despite evidence to the contrary in New Hampshire, is that state spending relieves the burden on local taxpayers and cuts to state spending increase local taxes. Connecticut’s experience is that a new revenue source just allowed spending to grow through the roof.

Connecticut had been 14th in the country in state and local taxes with a per capita burden of $2900 (New Hampshire at the same time was at $1900). In the first four years, Connecticut jumped to fourth highest state and local tax burden where they’ve stayed. They jumped from $2900 to $3900 during a period where New Hampshire went up only from $1900 to $2300. Further, in the first decade and a half after growing government, per capita tax burden climbed from $2900 to $7600 during a time when New Hampshire’s state and local taxes increased at half the rate, from $1900 to $3700.

A new tax source didn’t shift the burden from locals to the state, it merely grew government dramatically, faster than its neighbors, and faster than the rest of the country.

Surely some of the extra tax money was used to help the state help the towns though, wasn’t it? After all, that’s the excuse we hear all the time. If the state grows, they will shoulder more of the burden. In Connecticut, passage of an income tax was followed by the very same governor proposing a regular series of cuts to state aid. And Connecticut’s property taxes have climbed to second highest in the country.

A big new revenue source didn’t help displace other state sources or result in revenue sharing with local communities. It merely fueled a huge expansion in the size and scope of state government. Nor did it prove sustainable for the future.

The last Republican governor of Connecticut proposed billion dollar tax increases for the exact same reasons Weicker proposed them. The current Democratic governor has also proposed a billion dollar tax increase and cuts to local aid. More money equaled more spending not more help.

1 reply
  1. Jonathan Seaver says:

    Your premise that no one has ever proposed an income tax that would replace the property tax is false, as well as promising that New Hampshire will go down the same road as other states.

    I have suggested many times over the years that a state income tax dedicated to funding public education from kindergarten through college would greatly reduce the property tax burden in our state. Much of the ruckus against continuing the George W. Bush tax breaks for the wealthy is about the same problem we face in New Hampshire – the well-to-do have the tax system rigged so they do not pay their fair share.

    It is time for voters to change the legislature’s pledge to violate the state constitution by escaping the state supreme court’s ruling that the state has full responsibility for funding public schools and ignoring the section of the Bill of Rights that stipulates that everyone pay their fair share.

    It is not a question of spending, it is a question of whether our legislature will reform our tax system so everyone pays a fair share for the cost of government. Cutting schools and needed human services is against the New Hampshire tradition, and no sophisticated argument will change the reality that Speaker William O’Brien and his gang have ended the true New Hampshire Advantage.

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