Stabilizing business tax rates at last (for two years, anyway)

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Throughout 2019’s prolonged budget debate, two competing claims dominated the dispute over business tax rates. This week’s budget deal confirms conclusively which side was correct.

For months, Democratic leaders in the Legislature claimed that their budget — the one Gov. Chris Sununu vetoed — “stabilized” business tax rates. The budget did not raise taxes, they said repeatedly, but maintained existing tax rates and only eliminated tax cuts that were scheduled to take place in the future.

Republican Gov. Chris Sununu countered by accusing legislators of raising both the 2019 business tax rates and the 2021 rates.

The budget compromise Gov. Sununu signed this week reveals the truth. Unlike the vetoed state budget, this one actually keeps business tax rates the same for 2019 and 2020. It confirms that legislative leaders were incorrect when they claimed that their previous budget did not raise taxes.

On Jan. 1, 2019, the Business Profits Tax rate dropped from 7.9 percent to 7.7 percent and the Business Enterprise Tax rate dropped from 0.675 percent to 0.6 percent.

The budget that Gov. Sununu vetoed raised those rates back to their 2018 levels of 7.9 percent and 0.75 percent. It did so immediately, not in the future. It further eliminated the reductions (to 7.5 percent and 0.5 percent) scheduled to take place in 2021.

The governor insisted that the 2019 tax rates remain intact. Legislators insisted that rates return to their 2018 levels. There seemed to be no middle ground. Until this week.

How did this budget bring the two sides to agreement?

It did so by keeping this year’s tax rates intact and using revenue targets to trigger future changes.

The compromise budget keeps this year’s rates at 7.7 percent and 0.6 percent. Legislative leaders do not call this a tax cut. That is an admission that their previous budget did, in fact, raise business tax rates in 2019, not just in the future.

Under the compromise, if total general and education fund revenue for the current state fiscal year neither rises nor falls by 6 percent or more, those tax rates remain in place through the next fiscal year.

That is, the rates remain stable if revenue remains stable. At last, the budget “stabilizes” business tax revenue.

However, if total revenue rises by 6 percent or more, business tax rates will fall to the rates they were already scheduled to hit in 2021: 7.5 percent and 0.5 percent.

If total revenue falls by 6 percent or more, business tax rates will automatically snap back to their 2018 levels of 7.9 percent and 0.675 percent. This is another admission that the vetoed budget raised, rather than stabilized, business tax rates.

In essence, each side is betting that the economy will turn in their political favor in the next year.

In this deal, Democrats seem to be taking the bigger risk. To get what they have spent the better part of this year advocating, they need the economy to tank.

They have insisted that “out-of-state corporations” are unfairly undertaxed and that the state desperately needs more revenue. To achieve both, they have advocated higher business tax rates. Yet they get those higher rates only if state revenue comes in more than $155.8 million below expectations.

(Revenues have fallen slightly so far this fiscal year, but not at a rate that would trigger the tax increase.)

Gov. Sununu, on the other hand, gets two additional years of stable, relatively low tax rates (2019 and 2020). In the third year, he gets either a continuation of those rates or an additional tax cut unless state revenues quickly crater.

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Of 55 Sununu vetoes, 56% were for bills that would harm the economy or free speech

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Much has been made of Gov. Chris Sununu’s record number of vetoes in 2019.  Less has been made of the content of those bills.  

Media coverage of the governor’s vetoes has tended to skew toward the most contentious issues, such as voter identification and residency requirements or firearm regulations.  But more than half of the vetoes involved bills that can be expected to have a negative effect the state economy.  

A small and almost entirely overlooked subset of vetoes involved bills that would restrict citizens’ constitutionally protected free speech rights. 

As economic growth and free speech are issues for which the Josiah Bartlett Center for Public Policy advocates, we highlight in this brief the vetoed bills that would have a negative impact on both.     

Of the 55 bills that Gov. Sununu has vetoed, 28 (or 51 percent) were bills that would make New Hampshire less economically competitive through the imposition of new taxes, fees or regulations.  Three others would suppress constitutionally protected free speech rights.

Not every regulatory bill is on this list, however. For example, although it is a regulation on employers, it is unclear what economic effect Senate Bill 100, banning employers from inquiring about criminal histories on a job application, would have. Reducing recidivism and increasing the economic independence of people with criminal records would be positive outcomes. But these laudable goals have not been shown to follow from this type of legislation. Some research even suggests that such ban-the-box laws increase negative outcomes for law-abiding minority applicants. In his veto message, Gov. Sununu stated that the bill’s intended outcome is best pursued voluntarily. That is consistent with our general approach to economic regulation. Given the uncertainty clouding the outcomes of such legislation, we exclude SB 100 from this list.     

For readers following along at home, the 31 bills covered in this brief are outlined below. 

Vetoed bills that impose new taxes, fees, or economically costly regulations

House Bills 1 & 2, the state budget.  The Legislature’s budget spent nearly $500 million more than Gov. Sununu’s proposed budget, raised business taxes, imposed costly business regulations, and created a structural deficit that would require large spending cuts or tax increases in the future. 

House Bill 183, establishing microgrids and requiring electric utilities to buy base-load power from biomass facilities. This bill forces utilities to subsidize biomass plants.  The Public Utilities Commission estimated that the bill would impose above-market energy costs of $18 million on utility companies.  Utilities would pass those costs on to consumers. 

House Bill 211, banning employers from asking about salary history.  This ban began in Massachusetts in 2016 and is spreading nationwide.  Its intent was to weaken wage discrimination on the assumption that employers would pay people more if they were ignorant of their past history.  This may be a good practice for employers to adopt, but supporters and opponents both assume that the bill would force compensation cost increases for businesses. 

House Bill 292, expanding the insurance premium tax to include broker fees.  The Department of Insurance stated that the bill would increase tax revenue, but it could not say by how much.  This functions as a tax increase on insurers with no corresponding increase in services provided. 

House Bill 293, banning employers from checking applicants’ credit history.  This bill would ban most employers from using a person’s credit history in employment decisions.  However, it exempts banks, financial holding companies, government agencies, and numerous positions.  The exemptions are an acknowledgement that credit checks are valid for many positions and that disallowing them imposes costly risks on employers. 

House Bill 326, redefining “prime wetland” to include portions less than 50 feet wide.  Contractors and the state Department of Transportation expressed concerns over the bill’s vague language and its impact on development.  The House exempted state highways, but not other development.  The New Hampshire Association of Natural Resource Scientists opposed the bill, calling it too vague.  It is an unworkable, needless impediment to development.  

House Bill 365, expanding the size of solar and hydropower facilities to which electric utilities are forced to pay above-market rates for power.  This bill would make solar and hydro generators of up to 5 megawatts in size eligible for net metering, which was created for small, home-sized solar arrays.  It would compel utilities to pay about twice the current rate to those generators.  The costs, estimated at about $10 million a year, would be borne by ratepayers. 

House Bill 409, allowing municipalities to double the current $5 transportation improvement fee they charge for registered vehicles.  This is a 100 percent fee increase. 

House Bill 582, repealing the consumer rebate for the Regional Greenhouse Gas Initiative.   This bill would halt consumer rebates from the RGGI program, costing electricity ratepayers more than $5 million a year. 

House Bill 664, removing insurers from much of the auto repair coverage process.  This bill would force insurers to pay for any repair “to the extent the claimant’s vehicle is repaired in conformance with applicable manufacturer’s procedures.” That sounds harmless, but in effect it would prevent insurers from negotiating lower prices for many auto repairs, thus raising costs for consumers.  

Senate Bill 1, creating a state-run, tax-funded paid family and medical leave program.  This bill would impose a $168 million tax on businesses to fund a government entitlement program that would cost taxpayers more than $6 million a year to administer.  There is no evidence that employees want this benefit more than any other, and the governor proposed an alternative that would require no new state taxes.

Senate Bill 2, tripling state job training funds deducted from unemployment compensation tax revenues.  The bill would raise this funding from $2 million to $6 million a year and allow $600,000 of that to be spent on administration.  The state already spends millions on various job training initiatives.  By taking this money from the unemployment trust fund, it could trigger additional unemployment insurance tax payments in the future.  Legislative staff pegged the additional payments at $13 million in 2021 if the trust fund falls below its required reserves.

Senate Bill 10, raising the state minimum wage to $12 an hour.  This bill would force employers to pay higher wages to employees without corresponding increases in productivity.  It would function as a tax on hiring the lowest-skilled Granite Staters, reducing their job opportunities. 

Senate Bill 20, amending the youth employment laws and employment records and notification requirements for employers.  This bill would make employing minor teens more difficult, placing the first rung on the economic ladder out of reach for more people.  It would forbid employees from volunteering to work on their designated days off.  It would allow the state to force employers to keep employment record indefinitely, instead of for three years.

Senate Bill 72, repealing a requirement that the Public Utilities Commission grant utilities Renewable Energy Credits for the purchase of small-scale solar power.  The purpose of this bill is to force utilities to buy Renewable Energy Credits.  The PUC testified in committee that it would prefer to modify the formula it uses for granting credits rather than repealing the credit.  “Repealing the credit will cause ratepayers to pay more for RPS compliance” than the PUC’s proposal would. This bill would increase New Hampshire’s already high electricity prices. 

Senate Bill 74, raising the $25 fee on deeds and mortgages for funding the Land and Community Heritage Investment Program.  It would add $10 to the cost of recording a deed or mortgage. 

Senate Bill 99, changing the definition of gainful employment for workers compensation purposes.  This bill would force employers to make disability payments to people who can work, but who wind up taking a job that pays less than they earned in their last job. 

Senate Bill 140, allowing local school districts to deny students academic credit earned through State Board of Education-approved outside courses.  The Legislature last year passed a bill allowing students to earn high school graduation credits for approved courses outside of the public school system.  Businesses supported the program as a means of improving public education and job readiness.  This bill would cripple that alternative education initiative by authorizing school districts to deny credits already earned through the alternative courses. 

Senate Bill 146, eliminating the one-week waiting period before someone can receive unemployment benefits.  Forty-four states use this waiting period.  The Department of Employment Security estimated that this bill would trigger an additional $12 million in unemployment compensation tax payments in the first quarter of 2020 alone.  The department warned that in an economic downturn with high unemployment, this change could lead to a significant reduction of the unemployment trust fund. 

Senate Bill 148, regulating notifications public employees must be given regarding union membership.  This bill was intended to notify public employees of their constitutional right not to join a union and to inform them how much a union charges in dues.  The “constitutional right” language was removed and the bill became an attempt to codify in law rather than through contracts various union accommodations.  It would write into law that unions must have access to information employees might not wish to share, such as employees’ complete personal contact information, including cell phone numbers and personal email addresses.

Senate Bill 151, establishing administrative procedures for employers who fail to make payroll or obtain workers’ compensation coverage.  Current procedures give business owners notice that they might be in violation of the law, and they allow for a swift hearing.  This bill allows the state to force immediate work stoppages before a hearing, but suspends the stoppage pending the outcome of a hearing.  Violations of a work stoppage order would be a criminal offense.  It replaces a procedure that gives businesses the benefit of the doubt with an aggressively adversarial procedure that presumes guilt and imposes potentially fatal penalties. 

Senate Bill 167, creating a clean energy resource procurement commission and directly assessing only gas and electric distribution utilities to cover its expenses.  This bill creates a commission stacked heavily with renewable energy producers and advocates, tasks it with pursuing long-term contracts for renewable energy generation, and passes the costs on to an industry the commission aspires to destroy.  It also would push up energy rates. 

Senate Bill 168, increasing the amount of solar energy utilities are required to purchase by 900 percent.  By raising from 0.6 percent to 5.4 percent the percentage of a utility’s energy mix that has to come from solar power generators built after 2006, the bill intentionally creates a direct transfer of wealth from electricity ratepayers to solar energy companies.  The subsidy could tally more than $120 million by 2025, and $30 million a year after that, according to an analysis by the New England Ratepayers Association. 

Senate Bill 205, removing the requirement that systems benefits charge increases be approved by legislators.  Electricity consumers pay what the state calls a systems benefits charge each month to fund energy efficiency programs and assistance for low-income residents.  This bill allows the energy efficiency portion to be increased without legislative approval, effectively creating a tax that can be increased without being put to a vote of the people’s representatives.

Senate Bill 271, requiring prevailing wages on all state-funded public works projects.  This bill artificially inflates labor costs on public-sector, taxpayer-funded construction projects.

Senate Bill 275, requiring all state vehicles to be zero-emission vehicles by 2041.  The bill’s fiscal note estimates a $28 million price tag to rush the state to reach this artificial goal. 

Senate Bill 307, specifying the “color corrected temperature” of outdoor lightbulbs used by state agencies.  The bill states that “such luminaires have a color correlated temperature of 3,000 degrees Kelvin or less when initially installed or replaced….”  Though there is not likely to be an immediate cost, as the state already uses that standard, the bill needlessly writes this standard into law, making it hard to change in the future as technologies evolve. 

Vetoed bills that limit citizens’ free speech rights

Senate Bill 18, requiring that public employees give 30 days notice if they wish to stop the automatic deduction of union dues from their paychecks.  This bill is intended to weaken public employee free speech rights guaranteed under the First Amendment and upheld by the U.S. Supreme Court’s 2018 Janus ruling.  It would compel employees to continue paying union dues against their will for 30 days.  

Senate Bill 106, changing the definition of a political advocacy organization.  This bill is a deliberate attempt to suppress criticism of elected officials before an election.  It requires any organization that spends at least $2,500 on “communications that refer to a clearly identified candidate or candidates or the success or defeat of a measure or measures” to file as a political advocacy organization and disclose its donors.

Senate Bill 156, changing reporting requirements for political contributions from limited liability companies.  This bill would recategorize contributions from LLCs as contributions from individual LLC members.  The effect would be to discourage constitutionally protected rights to associate and engage in political speech.  It would carve out political activity as the one area of law where LLCs are not treated as a legal entity separate and distinct from its members. 

To download our full brief on these vetoed bills, use the pdf version here: Bartlett Brief — 56% Vetoed Bills

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Film production incentives flop in state capitals

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Dazzled by the allure of Hollywood, some New Hampshire legislators have spent years trying to create a state tax incentive program for the film production industry.  These efforts have died like a B-movie villain year after year, but they return from the grave at the start of each new session.  Research from other states shows that these incentives cost more than they bring in.  They are worse investments than Pauly Shore movies.

After expanding in the first decade of the 20th century, state financial incentives for the film industry suffered a nationwide retreat in the second decade as states abandoned them after seeing the terrible returns.  In this briefing paper, we show that New Hampshire legislators should forget these financial flops and focus instead on maintaining the state’s regime of low taxes for all businesses.

The state film production incentive highlight reel is a disaster:

  • A report from Massachusetts found that from 2006-2015 its program produced just 14 cents of new tax revenue per dollar spent on the program, only 34.3 percent of credit-eligible spending was in-state, and net generated in-state spending was less than the value of the tax credits.
  • A review of Rhode Island’s program concluded that, at best, it lost $1.8 million per year in tax revenue, and that it produced just 94 new film industry jobs in 13 years.
  • Georgia’s program, the most generous in the country, has spent more than $4 billion on production incentives over the last 10 years, but “the return on investment appears to be quite small,”  as each new full-time job in the industry has cost taxpayers at least $119,000.

Read the full the briefing paper here to see why New Hampshire should avoid these financial flops: Bartlett Brief – Film Production Incentives.

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50 years after start of anti-Seabrook protests, a turn toward nuclear power

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If San Francisco tech bro hipsters invented a carbon-free way to generate power 24/7, they would be hailed as saviors of the planet. Though they might yet come up with some use for a venti Matcha Green Tea Frappuccino, the energy technology in question predates them and even their retro clothes. In 1951 in Idaho, scientists for the first time used a nuclear reaction to generate electricity.  

Though 59 nuclear power plants generate about 55 percent of the non-carbon-emitting power in the United States, they are still opposed by environmental activists who came of age in the 1970s.

Some of those greens are celebrating 50 years of activism in New Hampshire this month. As they celebrate, there are signs that younger Democratic politicians and activists, fearing climate change more than nuclear meltdowns, are ignoring them and embracing the promise of carbon-free nuclear power. 

This spring, the Pilgrim nuclear plant in Plymouth, Mass., closed. It followed the retirement in 2014 of Vermont Yankee. The closings leave only two nuclear plants in New England: Seabrook Station in Portsmouth and Millstone in Connecticut. 

These closures have left New England more reliant on carbon-emitting fossil fuels. 

When Pilgrim closed, ISO New England, the region’s power grid operator, concluded that three new plants that burn natural gas or oil would more than make up for Pilgrim’s 680 megawatts. 

Vermont Yankee’s closure increased carbon emissions in New England as the 604 mw of nuclear power was replaced with natural gas, ISO New England confirmed. 

As the Springfield Republican reported at the time, “while replacing coal with a natural gas plant reduces carbon emissions, replacing a nuclear plant with natural gas-fired generation has the opposite effect.”

That’s why some politicians and activists on the left are questioning the wisdom of anti-nuke extremism.

Seabrook Station offers a cautionary tale. 

Scheduled to open in 1974, New Hampshire’s only nuclear power plant did not come online until 1990. In those 26 years, carbon-free power was replaced with carbon-emitting power. 

A planned second reactor at the site was scrapped after lengthy legal battles. The additional 1,150 mw of power that would have been generated by a second reactor were instead generated by fossil-fuel-burning plants. 

Coal-burning Merrimack Station and oil/gas-burning Newington have a joint capacity of 918 mw. Had the second reactor been finished, they might have been made redundant.  

In fact, instead of opening a nuclear plant in 1974, PSNH opened its oil-burning plant at Newington. The announcement of plans to build this plant came in 1969, shortly after activists formed the Seacoast Anti-Pollution League to fight the nuclear plant, according to Peter Evans Randall’s history of Hampton. 

To get an idea of how the anti-Seabrook movement led to unintended consequences, one need only look at NextEra Energy’s license renewal application for Seabrook. It estimated that replacing the nuclear plant with coal would create 9.5 million tons of carbon dioxide emissions per year and replacing it with natural gas would create 3.5 million tons. Those estimates were based on modern technologies, not the higher-emitting ones under which Merrimack Station and Newington operated for the 26 years before Seabrook opened. 

Environmental activists still claim the 26-year delay and the killing of the second reactor as wins for the environment. The ironically named Seacoast Anti-Pollution League, formed in 1969 to oppose Seabrook Station’s construction, is holding a 50th anniversary celebration next week. 

But this week’s CNN climate town hall showed that some Democratic politicians are not buying the anti-nuke nostalgia. 

Some presidential candidates, like Elizabeth Warren, remain steeped in the ‘70s.  

“The problem is it’s got a lot of risks associated with it, particularly the risks associated with the spent fuel rods,” she said on Wednesday. “In my administration we are not going to build any new nuclear power plants.”

Fears such as Warren’s are misguided, author Ben Rhodes documented for the Yale School of Forestry and Environmental Studies last year.  

Other candidates seem to have been swayed by more recent research such as Rhodes’. The Washington Post identified five remaining Democratic presidential candidates as open to nuclear power development. At the CNN town hall, Andrew Yang and Cory Booker embraced the promise of new nuclear technology.

“Right now nuclear is more than 50 percent of our non-carbon causing energy,” Booker said, accurately. “So people who think that we can get there without nuclear being part of the blend just aren’t looking at the facts.”

“We can actually go to the kind of innovations that make nuclear safer or safe,” he said.

That one word — “innovation” — marks the change in mindset. 

For generations, environmental activism has been guided by a fixation on government control. Protesters believed that the only path to Eden led backwards into the past, formed by state suppression of disfavored technologies. 

New nuclear technology is showing the old greens to be wrong. MIT Technology Review reported in February that nuclear power is critical for reducing global carbon emissions, a fact being recognized even by some environmental groups: 

“If the current situation continues, more nuclear power plants will likely close and be replaced primarily by natural gas, causing emissions to rise,” argued the Union of Concerned Scientists—historically nuclear skeptics—in 2018. If all those plants shut down, estimates suggest, carbon emissions would increase by 6%.

At this point, the critical debate is not whether to support existing systems, says Edwin Lyman, acting director of the UCS’s nuclear safety project. “A more practical question is whether it is realistic that new nuclear plants can be deployed over the next several decades at the pace needed.”

The recognition that the path to Eden will be cleared by innovators, not regulators, is a huge insight. It hasn’t permeated the presidential field — or even Sen. Booker’s own environmental plan — yet. But the fact that some candidates and environmental organizations are embracing it at the risk of angering Prius-driving, Pete Seeger-listening Baby Boomers is encouraging. 

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Expanding the tobacco tax to non-tobacco products is bad policy

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SUMMARY: Both the Democratic Legislature and Republican Gov. Chris Sununu included in their budgets an expansion of the state tobacco tax to electronic cigarettes. Bipartisan support for this policy is cause for concern because of its tax and health implications.

New Hampshire has no broad-based sales tax on goods, but it does have “sin” taxes on alcohol and tobacco. Legislators and the governor this year have proposed expanding the sin tax on tobacco to devices known as electronic cigarettes. 

This expansion is pitched not as a tax increase, but as a technical correction to an existing tax. But the measure is more complicated than that. For starters, the tobacco tax exists to discourage the “sin” of tobacco smoking. But e-cigarettes contain no tobacco. 

Current law (RSA 78:1) defines tobacco products as those that contain both tobacco and nicotine. E-cigarettes can discharge nicotine, a tobacco byproduct, but no e-cigarette burns tobacco. To get around that, the revision changes the “and” to “or.” The tobacco tax is thus changed to a tobacco or nicotine tax.

Nicotine is derived primarily from tobacco, but it does occur naturally in some other plants. It is habit-forming, like caffeine, but is not a carcinogen. It does not have the same health impacts as tobacco, and it is not always derived from tobacco. E-cigarette manufacturers are increasingly making their products with synthetic nicotine. 

This new version of the tobacco tax, therefore, applies this sin tax to products that contain no tobacco and increasingly contain nothing derived from tobacco either. 

An exemption that discourages kicking the habit 

Lawmakers recognized that this expansion would tax consumer goods that help smokers quit the habit. The proposed law supposedly avoids this negative effect by excluding from taxation “any product that has been approved by the United States Food and Drug Administration for sale as a tobacco cessation product and is being marketed and sold exclusively for such approved use.”

How many e-cigarettes does this exempt? None. No e-cigarette currently on the U.S. market fits into that tightly worded exclusion. 

Worse, the exclusion ignores studies that have shown electronic cigarettes in general to be effective at helping people quit smoking — more effective, even, than FDA-approved methods.

  • A study published in the New England Journal of Medicine in February found that “e-cigarettes were more effective for smoking cessation than nicotine-replacement therapy, when both products were accompanied by behavioral support.” In that study, e-cigarettes were almost twice as effective than alternatives. The abstinence rate after one year was 18% for people who switched to e-cigarettes and 9.9% for people who chose a different nicotine-replacement product.
  • A study published in 2016 in the British Medical Journal found that “(a)mong those making a quit attempt, use of e-cigarettes as a cessation aid surpassed that of FDA-approved pharmacotherapy.” Long-term e-cigarette users had a 42.4% cessation rate vs. 14.2% for short-term e-cigarette users and 15.6% for those who didn’t use e-cigarettes. The report’s understated conclusion was that “long-term use of e-cigarettes was associated with a higher rate of quitting smoking.”
  • A 2015 study by Public Health England, a government agency similar to our FDA, found that “e-cigarettes are around 95% less harmful than smoking” and “there is no evidence so far that e-cigarettes are acting as a route into smoking for children or non-smokers.” 

Lawmakers acknowledge the value of excluding from taxation products that help people quit smoking. Yet they define those exempted products not by their actual effectiveness, but by their endurance of a lengthy and costly federal regulatory process. (The average FDA approval time for medical devices is seven years and costs millions of dollars, a 2016 review found.) 

With studies showing that e-cigarettes can be more effective than FDA-approved smoking cessation products, this proposed law would encourage smokers to use less-effective smoking-cessation products while discouraging them from using more effective ones. 

E-cigarettes are not actually cigarettes 

This tobacco tax expansion also is based on misclassifying e-cigarettes as cigarettes. 

Under existing state law, an e-cigarette is not a cigarette. To be a cigarette, it must contain tobacco. E-cigarettes are tobacco-free alternatives to cigarettes. Manufacturers market these devices as “cigarettes” because the term is familiar and because the devices can deliver the nicotine fix smokers crave. But they are not tobacco products. 

Changing the definition of “tobacco product” to cover products that contain no tobacco is bad policy and bad precedent. In this case it also would discourage people from transitioning from real cigarettes to much healthier, tobacco-free e-cigarettes. 

Impact on the New Hampshire Advantage

Finally, there is a potentially large impact on small businesses, particularly convenience stores in border towns. 

On July 1, Vermont’s 92% tax on e-cigarettes took effect. Maine’s governor this month signed a law taxing e-cigarettes at 43% of the wholesale price. Massachusetts is considering a 75% vaping excise tax. 

As our neighbors attempt to squeeze revenue out of products proven to help smokers quit, New Hampshire would be wise to remain an island of sanity and sound policy. New Hampshire’s lack of a tax on these products would encourage cross-border sales and further entrench the New Hampshire Advantage. Following our neighbors in adopting a poorly reasoned tax that comes with negative health effects would be a mistake. 

Download a pdf version of this report: JBC 20-21 E-cigarette Tax Brief.

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How the Legislature’s budget compares to the governor’s

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The Legislature’s final budget spends $497.3 million more than Gov. Chris Sununu’s budget in General and Education Trust Fund appropriations in the 2019 and 2020-21 fiscal years.

In this report, we examine the three major differences between these competing budget visions: total General and Education Trust Fund appropriations, business tax rates, and disposition of the current-year surplus.

Read the full report here: Budget Visions Legislature vs Governor Final.

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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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New Hampshire dawdles as two-thirds of states move to collect online sales taxes

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After the U.S. Supreme Court ruled last June in South Dakota v. Wayfair that states could collect sales taxes from out-of-state remote sellers, New Hampshire lawmakers chose not to act. Other states did not make the same mistake. 

Eleven months after the Wayfair decision, the number of states with laws requiring out-of-state businesses to collect and remit sales taxes has more than doubled to 33, a Bloomberg Tax survey shows. 

The number of laws New Hampshire has passed to protect its businesses from these collections remains the same as last year — zero. 

Understanding the need for urgency, Gov. Chris Sununu called a special legislative session last July so lawmakers could quickly put some blocking legislation on the books. A majority of legislators opted to wait. A commonly heard reassurance was that we had plenty of time to act because states would respond gradually to the Wayfair decision. 

In fact, several states had passed laws authorizing cross-border tax collections before Wayfair, anticipating the ruling. Others wasted no time capitalizing on it, as the Josiah Bartlett Center warned. Why would a state wait a moment longer than necessary to expand its taxing power over people who cannot vote for any of its elected officials?  

Now, less than a year after the ruling, two-thirds of the states require businesses to collect and remit sales taxes if they do a specified amount of business in the state. 

And that isn’t the only Wayfair-related bad news. 

The Suffolk Superior Court in Massachusetts this week dismissed a lawsuit filed by six online retailers challenging that state’s effort to collect taxes on online sales retroactively. 

The day before that, the U.S. Supreme Court ruled in Franchise Tax Board of California v. Hyatt that states “retain their sovereign immunity from private suits brought in courts of other States.”

The ruling shields states from suit by private parties in other states. So a New Hampshire seller cannot sue another state in New Hampshire courts to protect itself against a cross-border sales tax collection. 

The Hyatt case was brought by a Nevada resident who had fled California’s hight taxes and was pursued by his former state’s tax collector. The Multistate Tax Commission, which promotes and facilitates cross-border tax collections, filed an amicus brief on behalf of the Franchise Tax Board of California. It had previously filed a brief supporting South Dakota’s pursuit of Wayfair. This week’s ruling is generally considered favorable to states that hope to reach into other sovereign states to collect taxes. 

As The Wall Street Journal wrote in January, a win for California’s Franchise Tax Board would mean that “governments could bully, extort and defraud residents of other states with legal impunity and no political accountability.”

This is now the law of the land, meaning New Hampshire retailers are increasingly at the mercy of foreign tax collectors. 

What has the New Hampshire Legislature done to protect Granite State businesses?

The House Ways and Means Committee retained three bills written to protect business from foreign sales tax collections, refusing to pass them. The Senate did pass Sen. Jeb Bradley’s Senate Bill 242, which is very similar to the bill killed in special session last year. It remains in the House Ways and Means Committee, where it has sat since February 25.     

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Five reasons Gov. Sununu was right to veto paid family leave wage tax

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On Thursday, Gov. Chris Sununu vetoed a Democratic bill to impose a $168 million wage tax on New Hampshire employees for the purpose of limiting their benefit choices and forcing them to accept a state-run paid family leave program. Here are five reasons why a veto was the only responsible action for the governor to take. 

  • The tax to fund a mandatory, state-run paid family and medical leave program was entirely unnecessary. The governor had proposed an alternative program that would allow businesses to opt in. With a voluntary option on the table, there was zero need to create a state-run program funded by a $168 million annual tax on workers’ wages, and which cost $6 million a year to run.  
  • The mandatory program in Senate Bill 1 limited employee and employer choices. By forcing employers to offer this one particular benefit, SB 1 would have prevented many employers from affording other benefits that their employees might prefer. As we have reported before, national polls show that employees tend to prefer many other benefits, such as more flexible schedules and more robust health care benefits, to paid family leave. The bill also forbade businesses from offering a smaller paid leave benefit in combination with other benefits employees might prefer.
  • Because SB 1 potentially overpromised benefits, it allowed a commissioner to raise taxes. Were the bill to become law, employees would expect 12 weeks of paid leave at 60 percent of their pay. But the bill acknowledges that these benefits might exceed program revenues. It authorizes the Employment Security commissioner to reduce benefits or raise the wage tax. It also authorizes the commissioner to reduce the tax or increase benefits if the program generates a huge surplus. A huge surplus would indicate that the tax rate is set too high. The bill in that case should authorize only a tax cut, not a benefit increase.   
  • SB 1 imposed a political preference on businesses and employees that in the long run could make New Hampshire less economically competitive. Paid leave is politically trendy, but trends change. Future employees may demand a different benefit. Passing a law compelling employers to offer this benefit freezes resources that could be used to respond to changing market conditions. This makes employers less nimble and less competitive. 
  • Even if Granite Staters overwhelmingly preferred paid family leave over other compensation options, SB 1’s approach would be economically foolish. But there remains no evidence that Granite Staters demand this benefit over others. Supporters of the bill have cited several University of New Hampshire surveys to claim that Granite Staters support paid family leave. But none of the surveys, including one released on the day of the House vote last week, gives respondents the option of choosing other benefits or higher pay. Nor do they inform respondents that a paid family leave program could mean lower pay raises or reduced benefit options in the future. It’s disappointing that these surveys continue to leave out important information that is regularly included in national surveys of employees’ benefit preferences. 
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Do Granite Staters really want mandatory paid leave?

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House Democrats insisted on incorporating a mandatory paid leave program — and its $168 million wage tax — into the state budget, knowing that this could trigger a veto by Gov. Chris Sununu. It’s a strange hill upon which to die, considering that there’s no evidence Granite Staters are demanding this specific workplace perk. 

This month the UNH Carsey Center for Public Policy released a report asserting that Granite Staters support guaranteed job protection for paid family and medical leave programs and a 60 percent wage rate while on leave. 

This is about as useful to lawmakers as a ping pong table is to the Night’s Watch. It’s nice to have, but when the real work starts its minimal utility quickly becomes apparent.  

Nowhere did the survey ask whether respondents would prefer paid leave to other benefits such as flexible schedules, more health coverage or higher pay. Nowhere did it ask whether employees would prefer paid leave if it led to lower pay raises or reduced benefits in the future. Nowhere did it ask how much employees would be willing to pay for such a benefit. 

The 2016 UNH poll that purported to show broad support for paid family leave in New Hampshire also left out crucial questions. It did not give respondents the option of choosing from a list of other possible workplace benefits. The only cost it included was $5 per week, which is on the low end of the cost scale for various paid leave programs.

Other polls have asked such questions, and their results do not support the theory that paid leave is so critically important for employees that the state must guarantee it via a mandate and wage tax.

  • A 2017 Pew poll found paid leave statistically tied with more flexible work schedules as the most preferred new benefit, with 28 percent preferring schedule flexibility and 27 percent preferring paid leave. (That poll also found, by the way, that most Americans were satisfied with their workplace benefits and thought their employers cared about them and their well-being.) 
  • A 2017 study by data research firm FRACTL found that employees ranked paid parental leave 8th among a list of 17 benefit options. More popular were better health benefits, more flexible hours, more vacation time, work from home options, unlimited vacation, student loan assistance and tuition assistance.
  • A 2017 survey by payroll and benefits firm JustWorks found that flexible schedules and remote work options were far more popular among employees than unlimited paid time off or parental leave. Fewer than half of employees said unlimited paid time off or paid parental leave were important. 
  • A Cato Institute poll last December found that support for paid leave crashes when people are given the option of considering the costs. In the abstract, 74 percent of Americans support paid leave. But 60 percent oppose paid leave if it would lead to lower future pay raises. 

Paid leave is being pushed on Granite Staters as if it is universally acknowledged as the holy grail of workplace benefits. It isn’t. National polling shows that most employees prefer other benefits to paid leave. And even if it were the most popular benefit, that wouldn’t make it the right benefit for every employee or every employer. 

When employers are forced to offer this particular benefit over all others, employees are then forced to accept this particular benefit instead of others employers might have chosen. There is no compelling case for forcing this choice on all New Hampshire employees. Creating a budget showdown over an entirely unwarranted mandatory benefit would only compound the mistake.  

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