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.
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.
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.
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.
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.
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.
A new briefing paper from the Josiah Bartlett Center for Public Policy shows that the House’s 2020-2021 budget proposal spends $382.4 million more in state funds than Gov. Chris Sununu’s proposed budget and includes $417.7 million in new taxes and fees.
The paper shows that the divergence in governing philosophies between the Republican governor and the Democratic House majority could hardly be more stark.
Sununu’s budget would increase fiscal year 2021 general fund spending by 5.4 percent over fiscal year 2018. The House budget increases spending over the same time period by 14.8 percent.
The tax increases show an equally sharp philosophical divergence.
Gov. Sununu’s proposed budget contains one expanded tax (extending the tobacco tax to cover electronic cigarettes) and a new fee (a charge on newly allowed sports betting). The House budget also expands the tobacco tax and includes the sports betting fee but also includes hundreds of millions of dollars in new taxes to cover the budget’s spending increases.
The House budget includes a sales tax on marijuana transactions ($4 million), business tax increases ($94.1 million), a new capital gains tax ($150 million), and a new wage tax (payroll tax) to fund a compulsory paid family and medical leave program ($168.6 million).
Without those new taxes, the House budget does not balance. In fact, it also doesn’t balance without the surplus built up over the last two years.
Both Gov. Sununu and the House spend the current state budget surplus. But the governor treats the surplus as one-time revenue attributable primarily to the immediate stimulatory effects of the federal Tax Cuts and Jobs Act of 2017. He therefore dedicates the money to one-time appropriations rather than recurring spending.
By contrast, the House treats the money as ongoing revenue and uses it to increase baseline state appropriations. Spending it this way requires future tax increases to sustain the higher level of spending, something the governor sought to avoid.
The House budget would turn state taxation and spending sharply upward and put it on a rising trajectory into the foreseeable future.
(A previous post in this space failed to account for a relocation of lottery revenues in the governor’s budget. That failure inaccurately put the House spending figure $584 million above the governor’s.)
A copy of the full report in pdf form is here: Budget Visions 2020-21-4.
New Hampshire’s Education Tax Credit Program is under fire from legislators who want to kill the program or reduce its funding. Unfortunately, much of the rhetoric accompanying these attacks is factually incorrect. Inaccurate and misleading statements have been used in testimony at legislative hearings, in public debate, and on social media in an attempt to discredit the program. This briefing paper corrects many of those misstatements and explains what the program is, who is eligible, and what little financial impact it has.
Read or download the full report (pdf) here: The Education Tax Credit Program: Fact vs. Fiction.
Legislators on Thursday are preparing to vote on bills to mandate that employers raise wages to levels some politicians find morally appealing. These mandates will hurt the lowest-skilled workers. They also have the potential to raise costs for consumers and taxpayers.
Though intended to benefit low-wage workers, these bills together are likely to harm Granite Staters who are trying to grab that first rung of the economic ladder.
Minimum wage
Prevailing wage
Prevailing wage laws mandate that construction companies pay higher hourly wages to low-skilled employees than they otherwise would. Research on the effects of these laws on total construction costs are mixed. But much of the research is consistent with minimum-wage research showing that the mandates lead to a preference for higher-skilled employees.
Summary
By artificially inflating the price of low-skilled human labor, prevailing wage and minimum wage laws have the unintended effect of reducing employment opportunities for the lowest-skilled workers while artificially raising pay for people who have had the good fortune to have greater workforce experience.
Though these wage mandates are intended to be a forced wealth transfer from businesses to low-income employees, they wind up creating a forced wealth transfer from the lowest-skilled workers to higher-skilled competitors.
A pdf version of this brief can be downloaded here: JBC – Minimum Wage Warning.
Executive summary: Funding for the state’s Division of Children, Youth and Families has become a contested political issue in this year’s state elections. Framing the debate, former state Sen. Molly Kelly, the Democratic nominee for governor, asserts that the 2018-19 state budget signed by Gov. Chris Sununu prioritized tax cuts for the wealthiest corporations over child protection, thereby draining state revenue and leaving the division with less funding. This briefing paper takes a look at those claims.
We find that the 2018-19 state budget signed by Gov. Sununu provided DCYF with its largest general fund spending increase in at least a decade. We find as well that the business tax cuts included in the budget were not targeted to the wealthiest corporations and did not cause DCYF funding reductions.
DCYF Funding
NOTE: Until the 2014-15 state budget, the Division of Children, Youth and Families was a separate division of the Department of Health and Human Services, listed as a single category in the state budget. Starting in that biennium, DCYF was no longer listed in the state budget as a division. Its funding was divided into DCYF’s two primary component parts, “Child Protection” and “Child Development.” To make sure we were comparing apples to apples over the past decade, we asked the Legislative Budget Assistant to verify what budget categories constituted DCYF funding during that time period. The spreadsheet accompanying this brief (attached at the bottom of this post) is the LBA’s breakdown of DCYF’s core Child Protection and Child Development funding over the past decade, with the Sununu Youth Services Center budget shown separately.
As with other state agencies, state general fund appropriations for the Division of Children, Youth and Families have fluctuated with the state’s financial fortunes. In the last decade, both political parties have cut state general fund spending on DCYF in leaner times and increased it when more money was available.
For example, the 2010-2011 budget was signed by Democratic Gov. John Lynch and written by a Democratic legislature, with Democratic Sen. and future Gov. Maggie Hassan taking the lead in the Senate. It cut state funding for Child Protection by 12 percent from 2009-2010 and for Child Development by less than a percentage point.
The Republican-led Legislature cut state DCYF funding further as part of its broad spending reductions in the 2012-13 budget, which Gov. Lynch let pass without his signature. In the 2014-15 and 2016-17 budgets, DCYF state funding inched slightly higher.
Then in the 2018-19 budget, Gov. Sununu and the Republican Legislature substantially increased state funding for DCYF. State general fund spending on Child Protection rose from $39,855,790 in 2017 to $45,857,006 in 2018, then to $47,688,777 in 2019. State General Fund spending on Child Development rose from $10,886,714 in 2017 to $11,391,914 in 2018 to $11,849,106 million in 2019.
In total, state General Fund spending on DCYF was increased in the 2018-19 budget by $8,795,379, or 17.3 percent.
No other budget in the last decade comes close to increasing DCYF funding by as large a percentage as the budget Gov. Sununu signed in 2017. Far from neglecting or underfunding DCYF, the 2018-19 budget treated it like a favored child.
Business Tax Cuts
Legislators in 2015 passed business tax cuts to take effect on Jan. 1, 2016. They dropped the business profits tax rate from 8.5 percent to 8.2 percent and the business enterprise tax rate from 0.75 percent to 0.72 percent. A provision in the budget provided that the rates would fall again for fiscal year 2018 if general and education fund revenues hit at least $4.64 billion by the end of fiscal year 2017. Revenues hit $4.865 billion, easily exceeding the target, and on Jan. 1, 2018 the business profits tax fell to 7.9 percent and the business enterprise tax to 0.675 percent.
The 2018-19 budget signed by Gov. Sununu introduced another round of business tax rate reductions. The business profits tax is scheduled to drop to 7.7 percent on Jan. 1, 2019 and 7.5 percent on Jan. 1, 2021. The business enterprise tax is scheduled to drop to 0.6 percent on Jan. 1, 2019 and 0.5 percent on Jan. 1, 2021.
Opponents of these business tax cuts have for more than a year floated a talking point which asserts that the 2018-19 budget contained $100 million in tax breaks reserved exclusively for the state’s wealthiest businesses. In some cases opponents have asserted that the tax cuts were for the richest 3 percent of businesses.
Former Sen. Kelly has combined this attack with her claim that the budget shortchanged DCYF. For example, in an Aug. 30 opinion column for the New Hampshire Union Leader, she wrote:
“Sununu became governor knowing that DCYF and the state’s obligation for the safety of our children was in jeopardy. He has not done enough to fix it. Instead, his priority in his 2017 budget was giving away $100 million in tax breaks to the wealthiest corporations, when he should have ensured DCYF had every resource needed to protect our children.”
As detailed above, the budget Gov. Sununu signed in 2017 increased DCYF funding dramatically. Did it give away $100 million to the wealthiest corporations?
Neither the governor’s proposed budget nor the final state budget projected business tax revenue reductions. On the contrary, both counted on a growing economy to increase business tax revenue, which is exactly what has happened so far.
The governor’s proposed budget counted on business tax revenue growing by $31.7 million over the biennium (it also increased DCYF funding by $7.6 million). Rather than cut DCYF funding to account for lost business tax revenue, it proposed using increased business tax revenue to increase DCYF funding. The final state budget did the same thing.
The Committee of Conference that agreed on the final state budget projected business tax revenue of $662 million in 2018 and $672 million in 2019. Available data suggest that these were conservative projections. Business tax revenues for fiscal year 2018 were $776.6 million, according to unaudited state figures. That’s 17.3 percent above plan and 22.4 percent above the prior year.
How can one claim that the budget lost $100 million because of business tax cuts when it increased business tax revenue by $114 million — more than the supposed revenue loss — in only its first year?
The $100 million figure likely comes from revenue projections presented by the Legislative Budget Assistant’s Office during the budget negotiations.
The Legislative Budget Assistant provided an estimate of the cumulative value of the 2018-19 budget’s business tax cuts, which projected a revenue loss of $96 million through 2021 with another $86 million in 2022. It further estimated a $9.7 million annual loss from the budget’s expansion of allowable business profits tax deductions from $100.000 to $500,000.
There are multiple problems with using those projections as the basis for claiming that the budget took money from DCYF to give to rich corporations.
First, those estimates apply to tax law changes that take effect in 2019. If those rate reductions do materialize, they would have no effect on DCYF funding for the 2018-19 budget, which is already set.
Moreover, this theoretical future revenue loss is inconsistent with the results of the preceding business tax rate reductions.
Business tax revenue exceeded projections by $132.8 million (23.4 percent) in fiscal year 2016 and by $72.7 million (12.9 percent) in fiscal year 2017, as recorded in the state’s official Comprehensive Annual Financial Reports for 2016 and 2017. Unaudited figures for fiscal year 2018 show business tax revenues coming in $114 million (17.3 percent) above state budget projections and 142.3 million (22.4 percent) above fiscal year 2017.
Since fiscal year 2016, when the business tax rate reductions took effect, revenues from state business taxes have risen, exceeding state projections by $319.5 million.
The state has three years of data to show that business tax rate cuts did not starve the state of funding, but instead likely contributed to the increased economic activity that fueled an unexpected $319.5 million business tax windfall.
The revenue loss projections were made using static scoring, which does not take economic growth or changed business behavior into account. They represent a simple mathematical calculation of state tax receipts assuming that lower tax rates have no effect on anyone’s behavior. The state’s experience since 2016 shows why this is a bad way to project tax revenue.
Moreover, neither the projections nor the rate cuts themselves support the claim that the budget’s business tax cuts were targeted to the wealthiest corporations. The rate cuts are not targeted to wealthy corporations but apply to all businesses that have to file New Hampshire business taxes.
Conclusion
There is no factual basis for the claim that DCYF funding in the 2018-19 state budget was neglected or diminished because of reduced business tax collections. Because business tax revenue has been significantly higher than projected since rate cuts began in 2016, legislators were able to increase DCYF funding by 17.3 percent in the 2018-19 budget. The first year of that budget brought in an additional $114 million in unanticipated business tax revenue, more than making up for the alleged $100 million in hypothetical future business tax losses. Those hypothetical future losses have not caused reduced DCYF funding and are inconsistent with the results of business tax rate cuts from 2016-2018.
Download a pdf copy of this brief here: JBC DCYF Biz Tax Brief
As of July, the average hourly wage for private employment in New Hampshire was $26.22, according to Bureau of Labor Statistics data compiled by the Federal Reserve Bank of St. Louis.
In February, New Hampshire recorded its highest average hourly wage on record, $26.89. (The Federal Reserve data show New Hampshire wages regularly peaking in winter, dropping a bit in summer.)
Even counting for inflation, New Hampshire’s real per capita personal income is up more than $4,000 since the recession.
Hillsborough County was in the top ten counties in the country for wage growth last year, and New Hampshire was among the top five states, according to Federal Bureau of Labor Statistics data released in August.
Amid all of this good news, activists and some politicians are telling everyone that things are bad for the simple reason that state law doesn’t mandate a higher entry-level wage.
This fixation on government mandates rather than the actual economy is a really telling difference in the way some people view the world. On one side, people look around and say, “things are good!” On the other, people bury their heads in statute books and say, “things are terrible!”
The “things are terrible” crowd is pushing again to raise the state minimum wage to $15 an hour. As always, the central assertion is that $7.25 an hour (New Hampshire’s minimum wage is the federal minimum) is not a ‘living wage.”
This is where the gap between the actual economy and economic notions expressed in law grows very wide.
The state Labor Market Information Bureau has compiled U.S. Census estimates for the number of people working at or below the minimum wage in New Hampshire. (Tipped jobs can pay below the minimum.) The data (based on surveys) show only 8,004 Granite Staters working at the minimum-wage or less in 2017.
That’s really low. In fact, it’s a 48 percent decline from the 15,284 Granite Staters estimated to have worked a minimum wage job in 2016. (The number for 2015 was 15,845.)
Why the drop? We don’t know yet. And because of the small sample sizes, it’s possible that a sizable chunk of the decline is a measurement error. Next year’s data will help fill out the picture. But even if 50 percent of the drop is a reporting error, New Hampshire would still have only about 11,600 people working at or below the minimum wage. That’s out of a working-age population of around 913,000, according to Census figures.
At the current estimate of 8,004 people, less than 1 percent of New Hampshire’s working-age population makes the minimum wage or less.
The data further show that 73.5 percent of Granite Staters making the minimum wage or less work in “food preparation and serving-related occupations.”
Tips, commissions and overtime pay are not included in the minimum wage figures, so the actual take-home pay of about three-fourths of New Hampshire employees who are classified as minimum-wage workers will be considerably higher than the minimum wage.
The Census estimates also show that 3,951 people, or 49.4 percent, of Granite Staters who make the minimum wage or less are between the ages of 16-24. These are high school and college-age employees with fewer skills and limited experience.
And experience, as in axe throwing or being Jose Canseco, is a key factor. Looking at the lowest-paying sector, food preparation and serving-related occupations, we see an entry-level wage of $8.36 an hour, a mean wage of $10.55 an hour, and an experienced wage of $13.76 an hour —just $1.24 an hour less than the $15 an hour wage some activists and politicians are demanding.
This tells us that wages are not a measure of a person’s moral worth or dignity, but of economic value. Employers pay inexperienced teens less than experienced adults for reasons that ought to be obvious to anyone who’s ever had a job or waited in line at a McDonald’s. And they pay higher wages to attract better employees.
Even in the fast food industry, competition for good employees is driving up wages so that the minimums in many paces are $10 an hour or higher.
More than doubling the minimum wage to $15 an hour would have a relatively small effect on the pay of experienced employees even in the lowest-paid industries. But it would have a big effect on entry-level positions, effectively pricing younger, less-experienced people out of those jobs.
In an economy in which employers are voluntarily raising wages, we are being told that the government must mandate a very high wage floor, which gets us back to the point about markets vs. laws.
Laws are expressions of moral values. Markets are expressions of economic values (mostly). Even when markets are pushing pay rates higher, people who view the world a certain way find this unacceptable precisely because it does not come from a moral directive.
For the conspicuously virtuous, everything all the time has to be an expression of moral values. Markets don’t operate that way. They consider tradeoffs, which the conspicuously virtuous rarely do. Everything is black and white, good or bad.
So even if markets are driving wages higher, society must act collectively to mandate that wages never fall below whatever the virtuous wage floor of the moment is. Refusal to pass such a mandate is considered a society-wide moral failure.
Or to put it in the contemporary vernacular, minimum wages are virtue signaling.