Don’t exaggerate capital gains tax
The New Hampshire House passed a capital gains tax and an estate tax as part of its budget proposal in March, and because of a combination of illness and extreme workload I did not have time to respond to the characterizations that have appeared, as late as early July, in NHBR. Since they have still been appearing, it seems proper to set the record straight.
Several writers in NHBR think that these two proposals were not put through public hearings. On the contrary, both were introduced as ordinary bills, noticed and heard in the usual way, put into subcommittees which were also noticed, and then, because they were important to balancing the budget, given straw votes in a noticed committee work session and proposed to the Finance Committee for the budget.
A full analysis was prepared for the Senate, but the senators were looking elsewhere. The DRA later told us that the fiscal note for the capital gains tax should have been $100 million, not the $75 million we initially reported. In order to compromise with the Senate, we agreed to look for a third way, as promoted by the governor.
My committee, Ways & Means, was determined not to increase the load on business taxes in general, but particularly during this recession. One writer in NHBR has equated capital gains and direct business taxes as equally hard on the business economy. I would beg to differ, and would like to open a dialogue on this subject.
Capital gains taxes individuals who invest in business, or sell a major personal asset. Most of the returns taxed come from high-wealth individuals who are the ones who can best weather this recession. These individuals invest all over the globe, and few primarily in New Hampshire. The 5 percent proposed on returns is a modest levy relative to other states with a much higher concentration of wealthy individuals. Direct business taxes have an immediate effect on the ability of a business to survive if it is struggling, and these days most are struggling.
Capital gains are the present-day equivalent of what the interest & dividends tax meant to tax when it was created almost a century ago. New Hampshire’s 2005-07 median household income was $61,500. The IRS statistics for 2006, the most recent year available, show that medium- and low-income New Hampshire filers with adjusted gross incomes under $75,000 (well over half the state’s population) accounted for 32 percent of interest income, 21 percent of dividend income, and less than 6 percent of the capital gains income reported for the state. The modern I&D tax affects the savings of the lower-income households of New Hampshire a great deal more than it does those of the upper-income ones.
New Hampshire’s government was diagnosed with a structural deficit two decades ago, and the executive and Legislature have been struggling ever since to reform structures, shed functions and contain costs. We are down to federal and state constitutional mandates, plus the programs which an overwhelming number of citizens come out to defend, plus a major subsidy to local governments (this biennium it is 39 percent of our general and education revenues), which directly reduces our highest-in-the-nation property taxes.
The occasional bits of programs we identify that can still be cut are rare, and rarely significant, though we keep trying to find more.
The recession required much higher spending of us for core human service mandates, and we have cut elsewhere much more than we would like. We could not cut enough to avoid extra taxes without withdrawing from federal support and taking our state back to the days before the New Deal. The slot machine option proposed revenues that we did not believe would come in at the level and in the time claimed, based on years of research into the industry. The traditional taxes have been raised over and over and are at their limits in the same fashion as the direct business taxes are.
I personally would prefer full tax reform – an income tax and reduction of business and other taxes – but I know I am in the minority and that in most parts of the state people seem to prefer the high taxes they know to an income tax they don’t.
Given all these factors, we chose to advance the capital gains and estate taxes, with the full exemption protections the federal government has written into them over the years. This has much less impact on New Hampshire’s business economy than increasing direct taxes on business, and the cyclical aspects can be dealt with by rigorous adherence to building the rainy day fund during good years.
We want to see this state remain a thriving economy – one that provides good jobs for the full range of our citizens, and also provides the basics of public service that the vast majority of our citizens and businesses insist upon.
I would welcome the opportunity for a full dialogue on these issues.
Rep. Susan Almy, D-Lebanon, is chair of the House Ways & Means Committee.