July 30, 2014
As originally published in the New Hampshire Union Leader
New Hampshire has had and continues to have a problem with administrative tax increases. Taxes, the removal of your money from you by force of law, is a fairly aggressive governmental act and should only take place through legislation debated openly and acted upon by elected officials directly accountable at election time. Unfortunately, administrators are sometimes encouraged, directly or indirectly, to act so that legislators don’t have to.
The idea of administrative tax hikes taking the place of legislation is something we’ve had to talk about often in New Hampshire. In a 2005, I sounded an alarm titled “Bureaucratic tax proposals subvert the democratic process.” A more recent piece a few years ago had the more descriptive title “Taxes should be voted on not snuck in through regulation.” Yet despite my incessant diatribes, we are faced with these issues again.
There is currently a dispute between the governor’s administration and some Republican state senators about whether a proposed regulatory change would have the effect of extending the Real Estate Transfer Tax to things it does not currently apply to. Whether that is a tax hike or an obscure administrative change ought to be obvious. Sadly, it is a dispute all too common in our recent history.
Tax laws are not always as easy as “pay 9% of this purchase.” The legislature may pass a law intending to tax certain things. They then explain in both the law and in regulation how to calculate which things are included and which are not. So far, so simple. But then human nature rears its ugly head.
It is easier for lawmakers when they have more money during budget season. With more money, they say no fewer times, have fewer difficult choices to make, and have to decide less often between interests competing for the same dollars. However, simply raising taxes and taking more of our money is not politically palatable. Apparently voters – the people who decide whether or not the lawmakers return – react negatively to having their taxes raised.
Some clever politicians though have figured out what might be called an end around. One way they can see more money but not technically vote to raise taxes is to get an administrator to “close a loophole” or “clarify the application of the tax.” Both of these things seem reasonable but both are open to abuse.
A loophole may exist because of an error in language that didn’t capture legislative intent. But more often, the tax was only applied to certain things and other categories were left out. What gets described as a loophole is merely an attempt to extend the tax to things the original law didn’t plan on.
As a matter of tax policy, it is not unreasonable to take a tax and make sure it applies to everything in its category equally – all restaurants not some, all of a particular kind of service or property, some categories but not others. Occasionally, advances in commerce can lead to some descriptions being outdated. But rewriting the tax code, changing the law or the moral equivalent of the law, requires accountability.
Too often lawmakers in need of money will ask an administrator to draft a change and will find it easier to have that change made quietly and without legislative hoopla or too much public notice. In 2009, lawmakers crafting a budget had a gap on the last day when the revenue commissioner came in with a multiple page shopping list of changes that might be pushed through on the last day without benefit of public hearing or discussion. This was a godsend to lawmakers who wanted to raise revenue in a way that they could describe as not raising taxes (about half the changes were made and half were not).
This is not a nefarious action on the part of the administrator any more than the recent actions by Gov. Hassan’s commissioner are nefarious. Instead is part of a horrible tradition: you make the change so we don’t get blamed.
The solution to this game is simple and obvious. If any regulatory or administrative change has the effect of taking something not currently taxed and now taxing it, that change must be proposed by the legislature, go through the process of a hearing, and be voted upon. Without a vote by the people who we elect to act on our behalf and can also toss out, no new taxation can or should exist.