Leaping on the income tax grenade
In an extraordinary show of party discipline, Senate Majority Leader Dan Feltes and Finance Committee Chairman Lou D’Alessandro leapt into action Tuesday to quickly smother a political hand grenade tossed by freshman Sen. Jeanne Dietsch, D-Peterborough. They smothered it the old fashioned way — by throwing Sen. Dietsch on top of it.
Sen. Dietsch committed a double offense against party electability. First, she introduced an amendment (to an unrelated bill) to impose a 6.2 percent payroll tax on income above the $132,900 Social Security tax cap. Social Security taxes are not collected on income above that level.
Sen. Dietsch portrayed the tax as a reasonable levy on a small number of rich Granite Staters. But its financial and political impact were obvious. The tax would hit about 42,000 people and raise about $300 million a year, the Department of Revenue Administration estimated. That’s no small levy.
Her other mistake was to state the obvious. “This is an income tax,” she acknowledged.
At that moment, a submarine dive alarm must have gone off in Sen. D’Alessandro’s head.
Sen. D’Alessandro, a senior senator with slightly less leadership experience than Moses, was so eager to kill the proposal that he ignored or forgot proper procedure and moved the bill without acting on the amendment. He was later compelled to go back and call a vote. (The amendment failed 6-0, N.H. Business Review reported.
What made the proposal so frightening that it rattled even “Lion” Lou D’Alessandro? There was no way to spin the tax away as anything other than what it was — an income tax. Everyone was admitting it.
“This is an income tax, which I oppose,” Sen. Feltes said.
Interestingly, Feltes has spent a good portion of this legislative session arguing that his own payroll tax (in Senate Bill 1, his paid family leave plan) is not an income tax. Republicans say it is. What’s the difference?
Feltes’ bill includes an 0.5 percent payroll tax. But he cleverly wrote the bill so that it labels the tax an “insurance premium payment.”
In the bill’s language, the “insurance premium payments shall amount to 0.5 percent of wages per employee per week” and employers “have the option of paying some or all of the FMLI premium payments on behalf of employees, or may instead withhold or divert no greater than 0.5 percent of wages per week per employee to satisfy this paragraph.”
Feltes’ payroll tax is a tax on wages. It gives employers the option to pay the tax before allocating it to employees or after. In either case, it comes out of employee compensation.
In cases where employers choose to credit the tax to money already paid to employees, the only difference between Sen. Feltes’ and Sen. Dietsch’s taxes is the amount collected. They are both income taxes.
By giving employers the option to pay the entire costs themselves, Feltes seeks to put the burden on businesses, not employees, and avoid the income tax label. But the tax is tied to employee compensation and would come from those funds. At the very least, as long as everyone is acknowledging that a direct payroll tax is an income tax, then SB 1 authorizes an income tax.
If you’re curious who voted for and against SB 1, the roll call votes are here.