Charlie Arlinghaus

August 14, 2013

As originally published in the New Hampshire Union Leader

Because the numbers are so large, most people don’t bother to look at federal taxes and end up making assumptions that are at odds with the actual numbers. Federal taxes and the federal budget are very different from political rhetoric and muck of media reporting.

Every year the federal government adds to its historical analysis of who paid income taxes and how much they paid. Based on the rhetoric that floats around during the budget crisis that seems to return every few months, you might get the wrong idea. Interestingly, the federal income tax — the largest share of federal revenues — is remarkably progressive and has been getting more so for the last 30 years.

While the only certainties in life are said to be death and taxes, the federal income tax is an exception. Everyone may hate taxes but we don’t all pay them. Almost half of Americans, about 47 percent, don’t pay any income taxes. I don’t mean they get a refund of some of their pre-payments. Their annual tax income tax bill is either zero or negative (meaning their refunds exceed payments). That number varies by year and is a little higher in the early years of the recession but even in good times it was 40 percent.

One analyst, by the way, remarked that perhaps the 45 percent of people in polls who are happy with the tax system aren’t actually crazy as we might think but rather just the people who have nothing to be annoyed by because they don’t get a bill.

Everyone knows that richer people pay more in taxes because they have more money. If you make ten times what I make then I suspect you pay ten times in taxes. But is it proportional or do the wealthy manage to avoid their fair share as some think?

According to the 2010 data, the top 1 percent of all tax filers made 19 percent of the total income in the country. Their share of taxes, though, was much higher at 37 percent — almost twice as much as their income share would lead you to think. In contrast, the bottom 50 percent earned almost 12 percent of all the income but paid just 2.4 percent of the taxes. Instead of twice their income share, they paid one-fifth. Very progressive indeed as is every income split in between those bookends.

But do rich people pay less of a share than they used to? In fact, the change over 30 years has been remarkable. In 1983, the top 1 percent of earners paid 20 percent of federal income taxes and the bottom 50 percent paid 7 percent.

So, over the course of 30 years, the richest 1 percent has gone from paying three times the share of the poorest 50 percent to paying more than 15 times as great a share (and if you look at the year by year data it has been a steady progression over that time).

For those keeping track, the bottom 50 percent in 2010 was incomes under $34,300. The top 1 percent consisted of people earning more than $369,000.

The other great federal tax myth is that current levels of taxation aren’t anywhere close to balancing the budget. We can’t support the current government without big changes or so we are told.

Actually revenues grow every year — some years more than others and some less but, barring another huge recession, they will rise each year. According to the Congressional Budget Office, even with the current anemic growth assumptions, taxes will grow by an average of 5.8 percent each year over the next decade.

That could balance the budget without reducing spending. In fact, the lag for revenues to reach current spending levels is only three years. In other words, if we froze spending at the current dollar level, natural revenue growth would provide a surplus in three years.

Politicians in Washington can’t possibly freeze spending (though, of course their colleagues at the state level actually reduced spending in states across the country). But, let’s say they decided (an unnatural act for politicians) that come hell or high water the budget had to be balanced in ten years. Would huge spending cuts be required?

Not at all. Mild restraint would be required. Spending could grow at 3.7 percent and we would achieve balance in ten years. Why is that so problematic? Current spending projections anticipate spending to grow by 5.4 percent. Apparently, growing but by a little bit less is a Herculean task that we have no realistic hope of ever expecting the Lilliputians we send to Washington to accomplish.

Josh Elliott-Traficante

August 8, 2013

Last week the City of Manchester saw its general obligation bond rating downgraded from Aa1 to Aa2; in layman’s terms it went from the second highest to the third highest ranking category affecting $193 million in outstanding general obligation (GO) debt. The bond rating agency Moody’s also downgraded the school facility revenue bonds to Aa3, affecting $77.3 million in outstanding bonds.

The long term outlook for the city’s debt was also changed from negative to stable, indicating that further downgrades are unlikely.

Many have blamed the recently enacted tax cap for the downgrade and Moody’s opinion does mention it, noting that “(t)he rating also incorporates the city’s currently satisfactory financial position, which has been pressured by the recent implementation of a local tax cap.”

But is the tax cap really to blame for the downgrade? The key to the rating downgrade is the size of the city’s reserve fund, which dropped below 20% of revenues due to the recession and the sluggish recovery’s impact on tax collections. While a tax cap can limit the ability of the city to rebuild those reserves, the real culprit is the Recreation Fund.

The Recreation Fund, which consists of McIntyre Ski Area (which has been leased to a private group since 2009), a pair of ice arenas, and a golf course, have been operating in deficit for several years, requiring the transfer of a total of $5.8 million from the city’s general fund, with the understanding that it be repaid. The Recreation Fund currently carries this amount on its balance sheet as ‘due to other funds’. Given the nature of the debt, Moody’s considers it very unlikely that the city will recoup this money from the Recreation Fund and therefore factored in the write off for the full amount against the General Fund reserves.

Of this write off, Moody’s notes, “while the liability to the General Fund is limited given the size of the fund, the adjustment to the fund balance nonetheless brings reserves to levels below the current rating category.”

This means that the downgrade would have happened with or without a tax cap in place. The write off of the Recreation Fund deficit, which reduced the city’s Reserve Fund below the threshold for holding onto the Aa1 rating, is solely to blame. Had the tax cap not been in place there is a possibility that the outlook may have been rated positive rather than stable, but that would purely be speculation. Of the factors that could increase the city’s rating, two are directly related to the pressures placed on the city by the Recreation Fund, with the third being sustained economic growth.

Furthering the point, the last rating given by Fitch, another bond rating agency, less than a year ago mentioned the tax cap as likely to limit budget flexibility but concluded that “the impact of the cap on the city’s creditworthiness is presently neutral”

Charlie Arlinghaus

July 31, 2013

As originally published in the New Hampshire Union Leader

Massachusetts is simply not doing enough to help the New Hampshire economy. The news is full this week of stories about tax increases south of the border that should benefit us. But the changes are likely to have only a muted impact on the economy up here. In the past, we’ve been able to count on Massachusetts to drive more jobs and business our way. We may have to work harder in the future.

For decades, New Hampshire’s economy has benefited from a competitive advantage that drives jobs and people into our state. Tax advantages over Massachusetts (and the smaller economies of Maine and Vermont) have helped encourage businesses to locate in a state with no income tax, retail business to move to a state with no sales tax, and in general have created an idea in business development circles of New Hampshire as the low-tax island in the high-tax Northeast.

As other states adopted taxes on income or sales, New Hampshire resisted. In 1970, we abolished a dozen taxes on capital and replaced them with a Business Profits Tax. Much of our tax policy focused on the competitive advantage we had and tried to maintain over our neighbors. The phrase “New Hampshire Advantage” is used so often in legislative debate that its meaning is becoming obscured.

The advantage we seek to maintain is one related to reputation and behavior. We want people to buy, invest and locate in New Hampshire. The changes to tax law governing limited liability companies were fought and ultimately repealed four years ago fundamentally because they reduced or perhaps eliminated the incentive for entrepreneurial, startup companies to locate here as opposed to Cambridge.

But our neighbors can also be our best friends. Raising income or business taxes, for example, sends existing Massachusetts businesses looking around to see if there are friendlier fields nearby.

The changes taking effect in Massachusetts will spur some sales increases here, but they are actually much less damaging to Massachusetts and helpful to us than they might be. Gov. Deval Patrick wanted to raise income taxes, which would have done much more for us.

Raising cigarette taxes in Massachusetts by $1 per pack will probably increase cross-border sales. Tobacco sales are almost unaffected by 10 cents here and there. The 10-cent reduction in New Hampshire’s tax last year had no impact on sales (as some of us warned). When cigarettes cost $5 per pack, raising the price by a dime doesn’t get anyone to stop smoking, and lowering it by a dime doesn’t get anyone to drive here.

But a $1 increase probably will get more than a few north-of-Boston smokers to pop across the border to stock up. Every time Massachusetts increases cigarette taxes, New Hampshire cross border sales go up, as do some additional ancillary sales (liquor, for example). This will have a modest effect on tax revenues, but a very limited effect on jobs and business growth.

The other notable tax increase is a three-cent hike in the Massachusetts gas tax. The new tax is also indexed for inflation, so it will rise automatically without a vote. That’s a clever way to raise taxes without political fingerprints (so we need to avoid doing that here).

The gas tax will have almost no cross-border impact. Prices for gasoline are much less uniform than for most goods. They bounce up and down a great deal. No one’s going to drive very far to save 3 cents a gallon on gas that costs something like $3.70 when they aren’t quite sure if it’s factored into the price (near-border gas is often priced with the neighboring state in mind, regardless of tax). After all, at current prices the average driver is actually using 15 cents of gas for every mile he drives.

Patrick might be helping New Hampshire more with his new software service sales tax. The tax bill imposes a confusing new tax that has been called “the most sweeping software service tax in the nation.” Businesses are on the verge of revolt. An enterprising neighbor state that was friendly to software firms might take advantage of this stupidity and make sure companies realize that fertile fields exist just a hop, skip and a jump to the north.

Deval Patrick may not be doing as much to help us as some of his predecessors have, but I think he’s probably given us at least one nugget to work on.

Charlie Arlinghaus

April 24, 2013

As originally published in the New Hampshire Union Leader

Other states have always been annoyed by states like New Hampshire without a sales tax. Tax competition is distressing to the uncompetitive. But few tax grabs are as ill considered, unfair, and anti-competitive as the federal government’s attempt to impose a massive new internet sales tax. New Hampshire in particular needs to be careful. The new tax will lead to the elimination of the sales tax competitive advantage that is the foundation of our retail economy.

Under the American tax system, states may apply taxes to entities with a physical presence (or “nexus”) in the state. It would of course be ridiculous to expect an orange grower in Florida to apply your state’s sales tax on fruit you buy on vacation or to exempt you if you came from a state with no sales tax. So, in general, one state’s tax collector has no authority to reach across state lines and regulate you from beyond the borders.

For decades, mail-order catalogs annoyed state tax collectors. Because they weren’t located in a state, they didn’t pay taxes to that state just because a local placed an order – similar to the roadside stand in Florida selling oranges. After many skirmishes, the Supreme Court sided with the retailer and ruled that taxing a company with no state presence was a violation of the interstate commerce clause.

If mail order companies annoyed tax collectors, the internet made it even worse. My buying a shirt or book online and not paying sales tax apparently threatens the foundations of democracy.

By the way, how much of a threat to regular stores do you think the internet is? It’s less than you think. Total retail sales in 2012 were $4.3 trillion. The e-commerce share of sales was 5.2% of that total.

Nonetheless Congress is trying to pass a law to force every internet retailer to collect sales taxes for every jurisdiction in America. That’s not 50 different tax schemes, there are 9,646 different tax schemes. For example, in Chicago you would pay sales taxes on a purchase to four different entities – five different ones on certain purchases.

If you are a giant retailer like amazon.com, this is less of a problem for you so you support the law – it won’t put you out of business but will be a nightmare for your smaller competitors. If you are a small home-based retailer that does a little business through eBay you’ll just go out of business. Thank you Congress.

So far Congress is only punishing the 5% e-commerce people. For the 95% of sales that go to “brick-and-mortar” stores, this tax scheme is considered burdensome so they don’t have to collect any tax but their state’s tax (I’m not sure what the pinheads in Congress think it is about using the internet that makes a regulatory burden suddenly fine but then logic is not Washington’s strong suit).

Don’t expect the state tax collectors to be content with leaving the physical stores alone. Massachusetts has been trying for decades to force New Hampshire retailers to collect sales and use tax on Massachusetts residents. The internet sales tax bill gives them both a mechanism and a precedent. If we can force mail-order and internet companies to collect taxes for more than 9000 jurisdictions, then how hard will it be for Massachusetts to force tire stores or appliance stores to collect their sales tax. The day is not long off when Massachusetts brings action under the new scheme to force our state liquor store to collect and remit Massachusetts taxes on all those cross border sales.

Sen. Ayotte and Sen. Shaheen are both opposed to the bill but the New Hampshire legislature is technically helping to fund the effort to tax us. The legislature pays dues to the National Conference of State Legislatures ($126,761 annually to NCSL and others in the current budget draft). The NCSL is pushing this bill as some sort of state tax relief (I’m not making that up) and promises to “continue to advocate vigorously for” the new tax.

When the federal government interferes in state tax policy, it is never to help you pay less. Somehow “reform” always involves you paying more and the politicians having more to control.

Should every retail business in America, large or small, have to collect taxes for all 9,646 different tax jurisdictions? Garage sales, flea markets, the guy selling old records on eBay, an out-of-print book I bought by mail from England?

Congress should stick to destroying the federal government. They’re good at that. But I wish they’d leave state tax policy alone.

Dear Friends and Sponsors,

On behalf of the Josiah Bartlett Center, thank you to all for attending our Libertas Award dinner. Tonight we celebrate Raymond J. Wieczorek and the commitment to principled and limited government. The Libertas Award is named after the Roman goddess of Liberty and is meant to symbolize the inseparable link between individual and economic freedom that is at the core of the mission of the Josiah Bartlett Center.

Ray Wieczorek embodies the qualities we seek to honor tonight like few others in and around New Hampshire politics. He moved from remarkable business success to decades of public service and managed to stay one of the finest gentlemen you’ll meet in your life.

Ray grew up a Connecticut farmboy but came to New Hampshire more than fifty years ago. Like so many of us, he’s from away but decided to raise a family and make a living in New Hampshire.

He started a business with two pencils, a briefcase, and shoe leather waiting to be worn out. Hard work and sunny optimism transformed the business from nothing into Wieczorek Insurance, one of the most successful independent insurance companies in the state.

He quickly gained a reputation as a problem solver and served as Mayor of Manchester for a decade. Coming into office at the height of a recession when the city was 296 out of 300 small cities in livability, Ray made the tough decisions he became known for. Fiscal restraint and a never ending commitment to economic development turned the city around. At the end of his tenure, Manchester was ranked the #1 small city to live in.

You and I might retire to rest on our laurels but Ray wasn’t done. He served eleven years on the executive council gaining a reputation for paying attention to the details of management and operation. He served under governors of both parties and it’s no surprise the Governor’s efficiency commission he helped manage found $417 million in savings.

Governors Ray served under always found the same thing: a man committed not to partisanship and grandstanding but to details and tough questions. While he agreed and often disagreed with governors and officials, they uniformly found him to be agreeable and interested in the truth and better operations.

It is an honor and privilege to bestow our Libertas Award on one of the nicest people we know and someone we are both proud to call a friend.

Rich Ashooh & Charlie Arlinghaus

Charlie Arlinghaus

October 17, 2012

As originally published in the New Hampshire Union Leader

Surprising all political observers, November’s up-or-down vote on an income tax is neck-and-neck. This is a rare opportunity for voters to express an opinion on one issue alone without having to agree with the person advocating the issue on everything else. The results of the income tax vote overall and in specific districts will influence many politicians for years to come.

Some states have referendum and initiative elections in which a specific issue or law is voted on not by the legislature, but the people at large. New Hampshire is not one of those states. Laws must be passed by the Legislature and reviewed by the governor. The one exception to that rule is amending the constitution. An amendment is passed by the Legislature but must then be accepted by two-thirds of the voters before it takes effect.

Normally, amendments involve more complex or process-oriented issues. This year we have an exception. One simple constitutional amendment would merely ban an income tax. An income tax would still be possible in the future, but only by the higher threshold of amending the constitution, not merely passing a law.

In general, both political parties consider support of an income tax political suicide. Even the Democratic Party establishment insists that its gubernatorial candidates pledge to oppose an income tax. In contrast, tax supporters have often claimed that the public is not nearly as hostile to an income tax as the establishment is.

November’s vote will put that theory to the test. The only poll taken on the issue shows a roughly even split: 42 in favor, 40 against. Realistically, what this means is that a 67 percent majority to write it into the constitution is out of reach. In that sense, the vote turns into a true referendum on the issue of an income tax — a simple yes or no vote on your preference. A low vote will encourage income-tax advocates to redouble their efforts. A high vote will drive the issue firmly to the back burner.

New Hampshire’s economic competitiveness is tied very closely to an income tax. Our regular business taxes are among the highest in the country, typical of our region. The Tax Foundation’s small business competitiveness rankings find New Hampshire ranking poorly on the corporate tax component, but nonetheless ranking 7th overall simply because we don’t have an income tax.

The simplest reason to support the amendment is because you are opposed to the state implementing an income tax. And the simplest reason to be opposed to an income tax is experience.

Supporters usually claim they want to lower our taxes by implementing a new tax. But history has shown this just doesn’t work. The last two states to implement an income tax have been New Jersey and Connecticut. New Jersey had passed a sales tax to help with property taxes, but it failed to offer any help so they passed an income tax too and dedicated the money to a “Property Tax Relief Fund.” It has worked so well that New Jersey’s property taxes are the highest in the country.

So the people of Connecticut had a better idea, they thought. Led by Gov. Lowell Weicker, they passed an income tax in 1991 to give the state government more money. A vibrant state government would perhaps limit cost-shifting and improve the overall tax burden. We hear that argument here a lot. It didn’t work. Over the next 15 years, the per capita tax burden went from $2,900 to $7,600 (New Hampshire’s went from $1,900 to $3,700 in the same period).

Weicker himself was flabbergasted by what happened. Despite a huge fiscal boost from an income tax and a massive new revenue stream from casinos, the state faced a huge fiscal crisis in 2003 (and every few years thereafter). Quite correctly he blamed everyone: “They just spent the money. It’s as simple as that — the income tax, the gambling money. I just don’t know how you do it. I just don’t. I think it’s just outrageous. I really do.”

Give them the money and they will spend it. That’s what happens, and it’s why you can’t lower taxes by raising taxes. Politicians in New Hampshire are no more immune to temptation than politicians anywhere else. The result here would be no different.

Fortunately, we can avoid temptation and send politicians a clear signal that is not open to misinterpretation. Every politician will look at the result to guide his or her behavior. You should vote the way you want them to vote.

Charlie Arlinghaus

August 29, 2012

As originally published in the New Hampshire Union Leader

Political party conventions are giant taxpayer funded parties that have outlived their usefulness and should be eliminated. That Congress routinely votes to spend ten of millions of dollars on themselves is a sign of their own immaturity and helps explain the fiscal problem we have and they can’t seem to fix.

This week Republicans are gathering Tampa with Democrats to follow suit soon after in Charlotte. The events are misleadingly named presidential nominating conventions but in reality they are taxpayer funded bacchanals that play no real role in nominating a president.

Our federal legislators have voted to send $18 million to each major political party to spend on anything they wish so long as they claim it is related to a convention (refreshments count) and another $50 million each to help pay for the security a really big bash of this sort requires. In the grand scheme of things, the $136 million the legislators have voted to throw parties for themselves is not a huge part of the federal deficit. But it is a perfect symbol of the problem.

Federal legislators are so unwilling to face their problems that they can’t be bothered to eliminate a taxpayer subsidy for their own self-indulgence in the face of the most serious fiscal crisis of our lifetime. I know that $136 million won’t solve a deficit that is one thousand times that large but you have to start somewhere.

Some legislators are more than willing to seek out government waste of small amounts as symbolic of the problem. We were treated to weeks of stories about extravagant staff conferences in Las Vegas that cost taxpayers a few hundred thousand dollars. Yet gigantic parties that spend a thousand times that amount of money are passed into law without a thought.

Today, political conventions are one part infomercial for the presidential candidate but mostly an excuse for grown men and women to behave like college students at parties, river cruises, dinners, hospitality tents, and all other manner of celebration. Through it all, a thread will be woven where a few states at a time symbolically cast their votes for the presidential nominee, carefully orchestrated so the right state gets to be the one “puts him over the top” while balloons drop, horns blare, and people throw confetti.

All that confetti, all that booze, all those parties are subsidized by the taxpayers of the United States Of America. We collect $136 million from your paycheck so it can be transferred to a bureaucracy of party apparatchiks earning a tidy living this year as party planners. Actually we only collect two-thirds of it from your paychecks. The other one-third we borrow because taxes only cover about 65% of federal spending in America today.

Yet it is critical that we borrow money from whatever country is willing to buy our bonds because without the transfer, there might be fewer parties, less Scotch, or 20% fewer staff on the Committee on Arrangements. The taxpayer subsidy is about 23% of the cost of the party. Without money forcibly collected from you and me, it would only 77% as much as fun and we can’t have that.

Don’t get me wrong national nominating conventions have a noble history and were started by the state of New Hampshire. John Kennedy, running for the 1960 presidential nomination, gave in a speech in Dover which described conventions as a reform measure: “In 1832, disgusted with machinations of party chieftains, your State Legislature issued a call for the first national convention of a major political party. And it was that convention that nominated our first strong, popular President – Andrew Jackson.”

Conventions were broader based than selecting nominees by Congressional caucus and became even broader over time. With the advent of primaries, conventions were less gatherings of insiders and more a reflection of how the people voted. Today, no convention decides the nominee, we know well ahead of time who won. From an electoral standpoint, they are merely the final signature on the paperwork.

Whether they should exist or not is for party apparatchiks to decide. As long as television networks are willing to air the infomercial part, I suspect they’ll exist in at least a shortened form. But please stop forcing me to pay for them.

Very few people believe Congress is serious about the deficit. We might be more inclined to trust them if they would at least start by eliminating funding of their own self-indulgence.

Charlie Arlinghaus

August 15, 2012

As originally published in the New Hampshire Union Leader

New Hampshire is not a modern state nor is it run like a modern state. Each day in the news there is some other reminder that we run ourselves like some odd backwater anachronism and pretend it is a virtue not just silliness.

The Liquor Commission is in the news for having misplaced hundreds of cases of wine which weren’t supposed to exist but did and then didn’t. The real oddity is not the case of the mystery wine but the commission itself and why it even exists.

The Liquor Commission is the name of a department of state government and also three full-time executives who jointly run that department in a structure which was mostly eliminated in the 1980s.

As recently as the 1980s, many chunks of New Hampshire’s government were run not by an agency head but by three member commissions. We didn’t have a revenue commissioner; we had a three-man Tax Commission. Prisons had a board of trustees not a corrections commissioner. There were similar arrangements throughout state government.

During the Sununu administration, government underwent the last full scale reorganization. Taxes were managed not by an archaic multi-headed tax commission but by a single revenue commissioner responsible to the governor. Various administrative and human service functions were united with the Comptroller’s office under an Administrative Services commissioner. A bunch of small commissions were amalgamated into the Department of Cultural resources.

But one area left untouched was Liquor, probably for political reasons. So the state liquor monopoly, a business of almost $600 million each year, is not managed by one executive responsible to the governor. Instead it is controlled by a commission of three full-time executives — management by committee with one of three serving as chairman.

That has to change.

Recently, the Employment Security commissioner and her deputy were both forced to resign. As a temporary measure, the commissioner of Labor will fill in as acting commissioner.

Yet New Hampshire is one of the few states in the union which has these two departments separated. Instead of one guy filling in temporarily in one department while his deputy runs the other, why don’t we merge the two as so many other states have done and have these two guys run one more efficient department. I suspect these aren’t the only two departments that might easily be combined (think, for example, of the similarities of function in regulating banking, insurance, and securities).

Finally, you may have seen a news report about one of the executive councilors concerned that the education commissioner didn’t sit through all of the council meetings but too often sent her deputy.

In New Hampshire, our unique Executive Council not only confirms appointments but meets regularly to review much of state government. They approve appointments of not just commissioners but a few hundred people each year, probably a thousand positions in total; they approve contract and expenditure over $10,000, and various other expenses including, inexplicably, routine tuition payments of even a few hundred dollars.

They conduct this business twice a month with an agenda of a few hundred items and, for some odd reason, in the name of efficient government expect all the state department heads to sit through the entire thing in case they have questions. I’m not sure why making the entire management of state government sit for many hours is considered efficient or well advised.

It seems perhaps that the education commissioner has the right idea. The agenda is published well in advance. Although (again inexplicably) none of the electronically generated documents are available online for the public to see, a mountain of paper copies is hand delivered to each councilor well in advance of the meeting. It seems unlikely that any councilor has questions which just pop up mid meeting. In the absence of questions ahead of time, it’s quite sensible for a commissioner to send a lower level staffer and make herself available if anything were to come up.

But such is our state government. The way we’ve always done things is presented as a virtue. Change is annoying even if it proves to be more efficient. Situations like the one at employment security provide opportunity for change. But a more complete look is needed. The world has changed a great deal since 1985. Isn’t it conceivable that our government should too?

Charlie Arlinghaus

August 1, 2012

As originally published in the New Hampshire Union Leader

Election season breeds people blowing hard but spreading little other than hot air (insert your own joke here about my column). Let me shorten some of it for you but then suggest a few constructive things.

Each economic report that comes out will be an opportunity for those in power to explain how their ideas, although crafted for long term, are even now having an impact. See? Sweetness and light are even now being spread to the masses in desperate need spurred not because our policies took effect but because our very presence is a signal. Those out of power will say the opposite: even now the wasteland of destruction sure to be created by the bad guys is leaking out and the scariness of that desolation depresses everyone we need to be happy.

No matter your political philosophy, feel free to take this as a criticism of the other guys. In New Hampshire we have the fortune of living under the authority of a left-leaning Democratic president and a right-leaning Republican legislature. Clearly the success we enjoy is because one of those two is doing the right thing and countering the bad bits of the other.

Political windbags aside, all of this focus on jobs and the economy is a good thing. Whether you want to expand social programs to cover more people or make them more efficient, a growing economy and job base in New Hampshire benefits everyone.

The budget difficulties of the last few years were a direct result of the collapse of state revenue. Revenues go up when there are more jobs and down when there are fewer. Fewer jobs mean more people on state services. Regardless of your support for a social safety net, everyone’s ultimate goal is to have more people working. Almost no one prefers being a ward of the state to having an actual job.

So the task for those men and women who would be governor or would be legislators is to identify changes they can make to bring more and better jobs to the state.

Every candidate will talk about the things they don’t like, the things wrong with what’s happening in Concord or what used to be happening in Concord. More important is that we take this opportunity to redirect their conversation.

As a voter, we can say thank you for telling us what was right and wrong with the last session but please tell us what you would do instead.

Every economic development professional will tell you that the first thing people ask about is taxes. New Hampshire is very attractive to most business in some ways on taxes and less so on others. In general, the lack of a sales or income tax is a huge benefit and a big signal to most businesses. However, coupled with that is our Achilles heel: direct business taxation.

New Hampshire’s business tax is a Business Profits Tax and a linked Business Enterprise Tax. The combined tax makes up about one quarter of the state’s general and education fund revenue (the state operating budget) and is more than twice as large as the next largest tax.

The difficulty is that the rate over the last two decades has climbed to 8.5% (the creditable BET is 0.75% of a different base). According to the Tax Foundation, an arbiter of these things used by people on both ends of the spectrum, that gives us the highest business taxes in the country. Our competitiveness in their rankings is improves in other areas but on that subcategory, very important to sectors like manufacturing for site location, we are at a serious disadvantage.

The last legislature needed to balance the budget which was in a very bad spot – deficit estimates ranged from $600-$900 million. Cutting spending first was important to put us in a position to be able to reduce taxes as a business incentive.

I think they made a mistake cutting tobacco taxes first. Although tobacco taxes rose four of the previous five years and are extraordinarily regressive (poor people smoke in much greater proportion that wealthy people), lowering them creates little economic incentive. The first tax we should lower is the business profits tax.

Taxes are fundamentally a price on economic activity. Lowering the price of specific activities creates more of that activity – the incentives are stronger in some area than others but business taxation is among the most responsive areas.

As a candidate, tell me what you want to do about the budget – the most concern of state government. But tell me why. Let’s get our candidates thinking about job creation not just political wind.

Charlie Arlinghaus

July 18, 2012

As originally published in the New Hampshire Union Leader

The November election will include a constitutional amendment to ban an income tax. Whether they wish to see a ban written into the constitution or not, the vast majority of voters are opposed to an income tax based on the experience of other states.

The ballot vote on an income tax ban isn’t exactly a referendum because it divides people into three camps. Those who support an income tax will obviously vote no and many who oppose an income tax will vote yes. A third group will be anti-income tax but unwilling to write a ban for all times into the constitution, preferring instead to keep debating the issue every few years. In that sense, support for the amendment will only be a subset of those who oppose a new tax.

Tax systems are complicated and every state tax system includes a basket of taxes. Some supporters believe that an income tax is instantly fairer than any system which might include property taxation. Of course part of the problem is that no one has ever suggested eliminating property taxes and replacing them with an income tax. Every proposal for the last 90 years has involved adding a new tax but leaving in place virtually all the others as well.

A decade ago, Democratic Governor Jeanne Shaheen convened a commission on education funding to look at various new taxes. This wasn’t a conservative group hostile to an income tax (in fact, they were relatively supportive of one) but they found that, contrary to the rhetoric, “the substitution of a comprehensive income tax for local property taxes would diminish the progressivity of New Hampshire’s revenue system.”

I say this only to point out that the fairness or regressivity arguments about taxation are far from settled even on the left side of the spectrum.

Most conservatives are skeptical about a new tax based on the experience of other states. While most states that adopted income taxes did so long ago, the two most recent did so with at least the partial goal of reducing other taxes. And they failed.

New Jersey adopted a tax in 1975 with the proceeds directed exclusively to a property tax relief fund. Yet New Jersey’s property taxes are the highest per capita in the country and show no signs of slowing down.

The more recent experiment was Connecticut. During the 1991 recession, Lowell Weicker pushed through an income tax coupled with reductions to the corporate profits tax and sales tax, although the sales tax was extended to hundreds of new items. The first goal was to raise money but the second was to create a more stable tax system.

One theory, often espoused despite evidence to the contrary in New Hampshire, is that state spending relieves the burden on local taxpayers and cuts to state spending increase local taxes. Connecticut’s experience is that a new revenue source just allowed spending to grow through the roof.

Connecticut had been 14th in the country in state and local taxes with a per capita burden of $2900 (New Hampshire at the same time was at $1900). In the first four years, Connecticut jumped to fourth highest state and local tax burden where they’ve stayed. They jumped from $2900 to $3900 during a period where New Hampshire went up only from $1900 to $2300. Further, in the first decade and a half after growing government, per capita tax burden climbed from $2900 to $7600 during a time when New Hampshire’s state and local taxes increased at half the rate, from $1900 to $3700.

A new tax source didn’t shift the burden from locals to the state, it merely grew government dramatically, faster than its neighbors, and faster than the rest of the country.

Surely some of the extra tax money was used to help the state help the towns though, wasn’t it? After all, that’s the excuse we hear all the time. If the state grows, they will shoulder more of the burden. In Connecticut, passage of an income tax was followed by the very same governor proposing a regular series of cuts to state aid. And Connecticut’s property taxes have climbed to second highest in the country.

A big new revenue source didn’t help displace other state sources or result in revenue sharing with local communities. It merely fueled a huge expansion in the size and scope of state government. Nor did it prove sustainable for the future.

The last Republican governor of Connecticut proposed billion dollar tax increases for the exact same reasons Weicker proposed them. The current Democratic governor has also proposed a billion dollar tax increase and cuts to local aid. More money equaled more spending not more help.