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Note: This column was first published in the New Hampshire Union Leader July 5, 2019.

By Andrew Cline

Reading through the state budget passed and vetoed last week, I was struck by how many provisions had gone either unreported or lightly reported. The people’s elected representatives had just passed a $13 billion budget, and the people, excepting a handful of insiders, had little idea what was in it.

For example, the budget:

  • raised the tobacco-purchase age from 18 to 21 and changed the tobacco tax to a nicotine tax so the state could legally tax e-cigarettes (which sometimes contain nicotine but never tobacco); 
  • repealed the state law prohibiting state funding for abortions; 
  • raised this year’s business tax rates and applied the higher rates to taxes already paid this year, effectively imposing a retroactive tax increase on New Hampshire businesses.

It isn’t just the budget. Whole portions of the legislative session passed in relative darkness. 

In the last year, the Josiah Bartlett Center for Public Policy’s email newsletter has broken several political news stories. There was no media conspiracy to hide the news. Too often, there simply was no media. 

In some newsworthy committee meetings, the Bartlett Center had the only non-lobbyist with a pen and a publication there. Other times, we were the only ones questioning government officials about stories that weren’t the biggest topics of the week.

Our government watchdogs have been forced by collapsing profits to lay off the reporters who once kept the public informed. In their absence, the public knows not what transpires in its own state capital.

At the turn of this century, the press room at the State House was full, with several organizations sending multiple reporters. Even smaller papers like Foster’s Daily Democrat had a capital reporter. 

If you sent the press room a dozen doughnuts today, reporters would fight over who got to take home the leftovers. 

With so few journalists, legislators are doing their business with minimum scrutiny. The biggest issues get covered, but thinly compared to the past, and many issues go unreported. 

It’s worse in cities and towns. Reporters, once commonly seen sitting in the back rows of public meetings or roaming the halls of town offices, have gone the way of the shoe shine boy.  

The results are self-evident. Governing magazine reported in 2015 that dwindling media coverage of state government led to more pack reporting (reporters covering the same big stories the same way) and more click-driven reporting. 

Recent studies show that less media scrutiny leads to higher government spending. In a 2018 study, professors at the University of Notre Dame and the University of Illinois at Chicago looked at 1,596 newspapers in 1,266 counties from 1996 to 2015. They found that municipal borrowing costs increased in communities that lost newspapers. 

“You can actually see the financial consequences that have to be borne by local citizens as a result of newspaper closures,” a co-author said. 

A similar study in Japan found that an increase in newspaper market share was associated with a drop in public works spending. 

Other studies have tied newspaper losses to reductions in voter participation and civic engagement. Wallet Hub just ranked New Hampshire the most patriotic state, with civic participation being a top factor. If we abandon local journalism, we should expect that ranking to fall. 

More journalists make government more accountable and citizens more engaged. Some conservative readers might counter, “But not if all the journalists are liberal!” 

Media bias is a problem, but ending bias by killing newspapers is like ending Pledge of Allegiance protests by abolishing the NFL. 

It’s better to have an active news media, even biased, than to have no one keeping an eye on government.

Don’t take my word for it. Ask our Founding Fathers. 

During the American Revolution, reliable information was scarce and enormously valuable. In New Hampshire, patriot leaders constantly encouraged each other to read the newspapers. Letters from New Hampshire’s three signers of the Declaration of Independence include the following: 

Josiah Bartlett to John Langdon, Sept. 30, 1776: “There is no news here, more than you will see in the publick prints.”

William Whipple to John Langdon, July 8, 1776: “I must refer you to the papers for news.…”

Matthew Thornton to Meshech Weare, Nov. 12, 1776: “For better and further information and news, I must refer you to the newspapers, and you won’ t find more falsehood in them than is passing through this city.”

William Whipple to John Langdon, June 10, 1776: “Colonel Bartlett sends you newspapers.”

Citizens cannot check government power if they abandon the organizations that expose what government is doing. This Independence Day weekend, commit a radical act of American patriotism. Subscribe to your local newspaper.

Andrew Cline is president of the Josiah Bartlett Center for Public Policy, New Hampshire’s free-market think tank.  

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Five secrets of the Legislature’s 2020-21 state budget

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State budgets are like the Grinch’s Santa sack. They’re huge, unwieldy, and overstuffed with giveaways and surprises. Their contents are a mystery to anyone who doesn’t have hours to crawl inside and unwrap every little package, which is pretty much every normal person. 

We’re not normal (we like reading budgets), so we’ve done the unpacking for you.

Here are five interesting things we’ve found in the Legislature’s budget that have been overlooked or underreported in the news.

  1. The budget imposes immediate business tax increases. We’ve written about this before, but news reports continue to get it wrong. The budget does not merely repeal rate cuts scheduled to take place two years from now. It also raises this year’s Business Profits Tax and Business Enterprise Tax rates by 2.6% an 12.5% respectively. We have more on the budget’s tax increases here.
  1. Budget writers created a dangerous structural budget deficit. Legislators shifted much of the current budget surplus into the 2020-21 budget, then spent that one-time money on recurring line items. As a result, expenditures for fiscal years 20-21 exceed revenues by $134 million. That creates a hole in the ongoing budget that future legislators will have to fill. We have more on that here.
  1. From this fiscal year through the end of 2021, the budget spends almost $500 million more than Gov. Chris Sununu proposed spending. You can see our outline of the differences here.  
  1. The budget eliminates the existing prohibition on spending state taxpayer money on abortions. This repeal is located in House Bill 2 on Page 142, line 294, which states that the 2017 session law “prohibiting reproductive health facilities from using state funds to provide abortion services, is repealed.” 
  1. The budget moves occupational licensing revenue into the General Fund. When a barber, tattoo artist, nurse or other applicant for a state license pays the required fee, the money is kept in a segregated “office of professional licensure and certification fund.” That fund is to be used only to finance the state’s licensing regime. The budget changes the law to require that any licensing funds left in the account at the end of each fiscal year be moved to the General Fund. This would lend support to any licensed professional’s complaint that state fees are too high.

These are only a few of the newsworthy items we found that have received little or no media coverage. We’ve found more, which we will share in future posts.

If you want to do your own digging through the dark, cavernous goodie bag, knock yourself out. You can read HB 2, the budget “trailer bill” that contains the legal changes, here. 

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Dispelling myths about business taxes and the Legislature’s 2020-2021 budget

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Some supporters of the Legislature’s 2020-2021 budget are making inaccurate claims about its business tax provisions.

1. They claim that the budget’s tax increases apply only to rate reductions that are scheduled to take place in the future, and not to current-year tax rates.

2. They claim that the existing business tax rates and the lower rates scheduled to take effect in 2021 are tax cuts for “out-of-state corporations.” This brief shows how those claims are incorrect. 

Read our brief here: Bartlett Brief 20-21 Budget Biz Taxes.

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Legislature’s budget imposes retroactive tax increase on N.H. employers

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The legislative budget finalized on Wednesday and Thursday exposes most New Hampshire businesses to a retroactive tax increase, Department of Revenue Administration data show. 

The Committee of Conference budget raises the rates at which employers in New Hampshire have been taxed since January 1. Because it applies to taxes already paid, it would force thousands of New Hampshire businesses to adjust their tax filings. Businesses pay their taxes quarterly, not annually. 

 

Current business tax rates for 2019 are:

Business Profits Tax: 7.7%;

Business Enterprise Tax: 0.6%.

 

The committee of conference budget tax rates for 2019 are:

Business Profits Tax: 7.9 p%;

Business Enterprise Tax: 0.675%.

 

That is a tax increase. Any legislator who says the Committee of Conference budget only repeals tax cuts that are scheduled to take place in the future is incorrect.

Who is paying the 7.7 and 0.6 percent rates now?

Ninety percent of New Hampshire businesses are “calendar year filers,” which means that their fiscal year is the calendar year, Shaun Thomas, counsel for the Department of Revenue Administration, confirmed in an interview Thursday. 

All of those filers are being taxed right now at the 2019 rates, as are businesses with fiscal years that started between January 2nd and today.

So far this year, 15,500 businesses have already filed quarterly tax payments, according to the DRA. Those businesses are being taxed at the 7.7 percent BPT and 0.6 percent BET rates. (About half of the state’s businesses don’t earn enough money to owe taxes.) 

The only businesses not currently paying quarterly taxes at the 2019 rates are firms whose fiscal years haven’t started yet. But as soon as those fiscal years start, they will be paying at the 2019 rates. 

If the Committee of Conference budget becomes law, the 15,500 employers who have already filed estimated taxes would be subject to a rate increase on taxes they have already paid. For them, the state will have imposed a retroactive tax increase. They would have to increase their upcoming 2019 quarterly filings to make up the difference. 

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Our legislators must be scientific super geniuses

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For years, legislators have been on a relentless quest to raise electricity rates for Granite Staters. Because unlike the rest of us, they are geniuses. 

None of us knows exactly what New Hampshire’s energy mix should be. None of us could say precisely how much of the state’s energy should come from solar or biomass. 

But they know.  

In the continental United States, only three states (Connecticut, Massachusetts and Rhode Island) have higher electricity rates than New Hampshire. There are lots of reasons why our rates are so high. One is that we don’t have enough pipelines to deliver natural gas to the state. Another is that we have multiple state mandates that raise rates by requiring utilities to pay higher prices for the type of power legislators prefer — instead of the type of power consumers prefer. 

Because they know. 

This week they issued their latest genius decree. Senate Bill 168 would amend the state’s Renewable Portfolio Standards (RPS) to require that at least 5.4 percent of New Hampshire’s electricity is generated from solar sources by 2025.

The Renewable Portfolio Standards, imposed in 2007, force utilities to buy certain percentages of power from renewable sources such as thermal, new solar, biomass and small-scale hydro. Utilities must buy 25.2 percent of their power from renewable sources by 2025, with that 25.2 percent broken down into specific classes.

The current standards require that 0.6 percent of power comes from new (opened after 2005) solar generation. Bumping that to 5.4 percent in six years, as SB 168 does, is a huge increase. An ignoramus might ask: why 5.4 percent?

Why not 5 percent? Or between 5-10 percent? Why exactly 5.4 percent? 

That’s amazing precision. 

How do legislators know that 5.4 percent is precisely the right percentage of solar for New Hampshire to have? 

They must be super geniuses. Like Wile E. Coyote. 

That has to be it. 

We respect our legislators too much to believe that this whole RPS scheme is like kids dressing up for Career Day at school. “We get to play electric company executive today! Yay!”

Because legislators mandate specific rates for specific classes of renewable energy instead of, say, encouraging utilities to reach an overall target (with no penalties), they must know everything there is to know about energy. 

They must have knowledge that we little people cannot understand with our little minds and parochial concerns, like what will we spend less on this year so we can afford to pay the electric bill? 

Such knowledge is a gift.   

As we noted in April, University of Chicago researchers have found that RPS laws raise energy prices by 17 percent within 12 years after passage. 

We shared that study with legislators. They ignored it. The University of Chicago researchers must be imbeciles too. 

Business executives and ratepayer advocates have explained to legislators over the years that mandates such as these raise New Hampshire’s cost of living, discouraging business investment and making it harder for families and employers to make ends meet. 

But legislators keep passing more mandates. Their vision is beyond that of mere retirees and employers, with their petty concerns about grocery bills and survival in a competitive market.

As electric rates continue to rise, we common folk should resist the urge to get angry. 

Just consider the higher rates a genius tax. They’re the price we pay for living under the benevolent guidance of brilliant elites who know best how to spend the money we earn.   

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Legislators vote to raise business taxes, not ‘repeal future tax cuts’

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The Senate this week joined the House passing tax increases on New Hampshire businesses. Some reports give the impression that the House and Senate budgets would not raise taxes, but would repeal future tax cuts. Here we explain why that is not correct and the budgets raise business taxes, including the rates that businesses will pay this year.

Under current law, the business profits tax rate is 7.7 percent and the business enterprise tax rate is 0.6 percent for “taxable periods” that end “on or after December 31, 2019.” 

Both the House and Senate budgets would repeal those rates and replace them with rates of 7.9 percent and 0.675 percent, respectively. 

The budgets also would repeal the existing state law that lowers those rates further, to 7.5 percent and 0.5 percent, for taxable periods that end on or after Dec. 31, 2021.

Understanding how businesses pay taxes

What does it mean when state law declares that a tax rate applies to a “taxable period ending on or after December 31, 2019?” 

It does not mean that the tax rate takes effect on January 1, 2020.

A “taxable period” is not a calendar year. State law (RSA 77-A:1, IV) defines “taxable period” as a business’ fiscal year for federal income tax purposes. 

So a taxable period “ending on or after December 31, 2019” is a business’ fiscal year that starts in 2019 and ends on or after Dec. 31, 2019. 

A business will start to pay those tax rates in 2020, then, right? 

No. 

Businesses’ fiscal years do not always correspond with the calendar year. They can begin or end on any day of the year. 

Plus, businesses are required to pay taxes quarterly, not annually. 

Under New Hampshire law, any business with an estimated tax liability of more than $200 is required to estimate what its next year’s tax bill will be, and then submit 25 percent of that payment each quarter. 

Here is how that works.

In 2019, employers begin paying quarterly taxes for fiscal years that end “on or after December 31, 2019.”

For example, a business with a fiscal year that ends April 30, 2019, will start a new fiscal year on May 1, 2019. That new fiscal year will end April. 30, 2020. 

So starting on May 1, 2019, that company will be taxed at the rate in effect for “taxable periods ending on or after December 31, 2019.” It will make payments at that rate every four months throughout its tax year.

Under current law, companies with fiscal years starting May 1, July 1, and Oct. 1, 2019, will be making business profits tax payments at the 7.7 percent rate and business enterprise tax payments at the 0.6 percent rate this year. 

That’s why the House and Senate budgets do not just affect future tax rates that employers are not yet paying. The budgets would raise those fiscal year 2019 tax rates to 7.9 percent and 0.675 percent. 

So the House and Senate budgets would not merely not repeal future tax cuts, as is being reported. They would raise taxes on businesses this year.   

A tax increase is a tax increase

Furthermore, it is worth noting that “repealing a future tax cut” also is a tax increase. Those tax cuts are set in existing law. They apply automatically. To replace them with a higher rate is to raise taxes.

 

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Arkansas’ Medicaid Expansion work woes shouldn’t kill NH’s experiment before it starts

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Just as New Hampshire begins monitoring its Medicaid work requirements this month, legislators consider a bill to kill those requirements.

Often cited as a justification for eliminating the work requirements is Arkansas’ experience in 2018. That year, 18,164 Arkansas Medicaid enrollees lost coverage after the state enacted work requirements. But a closer look at the Arkansas experience suggests that poor program implementation and design were the most important factors in the enrollment drop. 

In this Barlett Brief, we look at the reasons for the Arkansas enrollment drop and show that they do not justify killing New Hampshire’s Medicaid Expansion work requirement before it has a chance to succeed.

Find the full brief in PDF format here: JBC-Medicaid-work-requirement-brief.

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With credit report restrictions, did legislators just hurt minority job applicants?

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To protect minorities from hiring discrimination, state lawmakers just passed legislation shown in academic studies to reduce the odds that minority applicants are hired. Hello, law of unintended consequences.

It’s recently become a progressive article of faith that employer credit history checks must be discriminatory in their effect if not their intent because minorities tend to have lower credit scores. Bans on employer credit checks have swept across the country in the last dozen years, and Sen. Elizabeth Warren has tried repeatedly to pass a national ban.

As with so many feel-good political measures, the issue is fraught with myth and hyperbole.

In Senate debates on Thursday, advocates for House Bill 293 suggested that people wouldn’t know if employers checked their credit or decided not to hire them because of a credit issue.

In fact, the federal Fair Credit Reporting Act requires employers to get written permission before checking an applicant’s credit history, and it requires employers to notify applicants exactly what credit issue caused them not to be hired. This allows applicants to dispute the report.

It also prohibits the use of credit history information to discriminate based on “race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age (40 or older).” That is, using particular credit issues to weed out black or female applicants while hiring white applicants with the same credit history is already illegal. So is checking the credit of only minority applicants.

Legislators expressed concern that employers could access an applicant’s credit score or that a person could be denied a job because of a poor score.

“This bill is about economic opportunity for people who are getting dinged on their credit,” Senate Majority Leader Dan Feltes said on Thursday.

But employers don’t have access to credit scores when checking credit reports. Being “dinged” on your score won’t affect your employment prospects.

Employers aren’t looking for credit-worthiness anyway. Employers look for big problems that could indicate an employee might not be trustworthy or might be a security risk.

HB 293 acknowledges that there is real value in employers having access to credit histories. It exempts any “bank holding company, financial holding company, bank, savings bank, savings and loan association, credit union, or trust company,” any “state or local government agency which requires use of the employee’s or applicant’s credit history or credit report” and anyone required by federal law to check an applicant’s credit.

It also exempts numerous executive and managerial jobs and any position that has an expense account or company card.

However, it doesn’t exempt front-line positions that handle cash, such as store clerks. The bill was drafted to eliminate credit history checks for lower-level hires, on the idea that this would reduce discrimination. But academic research shows that such restrictions actually harm minority job applicants.

A 2018 MIT study found that state restrictions on credit history checks “in fact have sizable, negative effects on labor market outcomes for blacks.”

The authors note that a minority applicant’s credit history provides a check against an employer who has biased assumptions about the trustworthiness of minority applicants. Seeing a black applicant with no major credit issues works against preexisting biases. Without access to credit reports, more employers appear to assume that black applicants have worse credit histories than they really do.

A 2017 Harvard/Federal Rserve Bank of Boston study found that “the changes induced by these bans generate relatively worse outcomes for those with mid-to-low risk scores, for those under 22 years of age, and for blacks—groups commonly thought to benefit from such legislation.”

“We find that the introduction of a ban is associated with a 1 percentage point increase in the likelihood of being unemployed for prime-age blacks compared with the contemporaneous change for whites. Thus, it appears that the prohibition of credit screening and the increased emphasis on other signals may actually, relatively, harm minority applicants.”

Legislators may have unwittingly made it harder for minorities in New Hampshire to find employment. They may have done so because they failed to check their own biases about how employers use credit checks.

Cue the Canadian clones singing wildly in a 1970s’ Lincoln Continental on a snow-covered road trip.

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A skeptic’s guide to commuter rail boosterism

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SUMMARY: To promote taxpayer funding of a quarter-billion dollar commuter rail project, supporters last week touted a single poll question, without context, that appeared to show strong public support for commuter rail. It’s a tactic rail enthusiasts have repeated for years. Journalists, lawmakers and the public should be skeptical of such PR campaigns. This brief run through the complex commuter rail issue shows how misleading such PR boosterism can be. 

Context

First, everyone should be wary of any poll that purports to show broad support for an expensive public policy without mentioning costs or alternatives. In some cases, it’s useful to know whether people favor or disfavor an abstract concept. But when a specific policy with known costs is being polled, it’s helpful to ask whether people are willing to pay for the nice idea in question.  

The New Hampshire Legislature votes on bills, not concepts. Casino gambling is a good example. Despite the concept frequently drawing broad support from the public and members of the House, no specific bill has been able to pass the Legislature once the details are laid out. Every issue involves tradeoffs, which abstract poll questions often miss.   

This particular commuter rail poll question did not inform respondents of the cost of the project. Nor did it tell them anything about rail’s impact on traffic, zoning regulations, population density, decreased funding for other public works projects, or other quality-of-life issues. Respondents also were not asked whether they would favor a state-run or private option. Without such details, we don’t really know whether the public supports the actual commuter rail projects under consideration.  

The St. Anselm College poll question asked, simply:

“Would you support or oppose commuter rail connecting Manchester or Nashua with Boston?”

Unsurprisingly, three-fourths of respondents (75.5 percent) were in favor. This is similar to 2015 poll that found 74 percent support for commuter rail in the abstract, with no cost mentioned. The 2015 poll was promoted by the New Hampshire Rail Transit Authority, the second by N.H. Business for Rail Expansion.  Advocacy groups are using abstract poll questions to promote a specific project, the taxpayer-funded, state-developed Capitol Corridor Rail Expansion Project. But the public is not being asked about any details of this project.

Before accepting these poll results at face value, journalists and lawmakers should consider whether they would publish a story or cast a vote after asking only a single, generic question. Commuter rail is a complex issue. Asking whether people would prefer commuter rail in the abstract is like asking if people would prefer to eat ice cream every day. Of course they would. But their answers will change if asked to weigh the tradeoffs. 

Regarding commuter rail, unless the topics listed in this briefing paper are covered, people have not been asked to make an informed choice between competing options. They have merely been asked whether they would like to see ice cream on the menu.  

Read the full paper in pdf form here: Skeptic’s Guide To Commuter Rail Brief.

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Leaping on the income tax grenade

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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.

“Dive! Dive! Dive!”

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. 

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