NH Senate panel to hear plan for payroll tax on higher-wage earners

Proposal aimed at lowering statewide property tax

A last-minute amendment going before the Senate Finance Committee Tuesday afternoon would impose a 6.2% payroll tax on higher-wage earners with the goal of cutting the statewide property tax by more than half.

The tax would be aimed only at those whose income is above the Social Security tax cap of $132,900. (Wage earners pay a 6.2% payroll tax to fund Social Security, but only up to $132,900.) Under this amendment, the state would start taxing those wages above that cap.

The first $200 million collected under the new tax would go to the educational trust fund, reducing the amount to be financed through the statewide property tax from $353 million to $163 million, effectively cutting the tax rate by 55 percent.

The amendment, proposed by Sen. Jeanne Dietsch, D-Peterborough, and Sen. Martha Fuller Clark, D-Portsmouth, would be attached to House Bill 198, a bill clarifying the prohibition against the use of mobile electronic devices while driving. It will be heard by the Senate Finance Committee beginning at 1 p.m., just before it begins this week’s budget negotiations.

“The state needs more revenue,” said Dietsch. “When I was knocking on doors in my campaign, the property tax was the biggest concern.”

While she realizes an income tax is a hard sell in New Hampshire, “this is an income tax that everyone else is already paying. It will increase the fairness of our tax system,” she said. “When you are making that much money you don’t pay attention to every penny. This is almost a painless way to raise revenue.”

Dietsch said she proposed the bill because she thought the Senate would remove a House provision to partially fund the budget with a new capital gains tax in order to avoid a veto by Gov. Chris Sununu. The capital gains tax proposal – which would spread the 5 percent interest and dividends tax to capital gains – was also aimed at the wealthy because it would substantially raise exemptions, resulting in a tax cut for smaller investors. It is also earmarked for property tax relief.

While Dietsch said she thought the governor might veto her proposal as well, she reasoned the Senate might go ahead with it as a standalone bill because it wouldn’t jeopardize a budget that has other Democratic priorities.

She said the amendment was not proposed by Democratic leadership, and she doesn’t know how many senators will back it. Messages to Democratic Majority Leader Dan Feltes, D-Concord, and Sununu’s press office were not returned by deadline.

The Business and Industry of New Hampshire plans to come out swinging against the bill at Tuesday’s hearing.

“We have long opposed a broad-based income tax,” said David Juvet, BIA senior vice president of public policy. “We also think it is bad policy to propose a major change of the tax structure with a non-germane amendment at the last minute.”

Juvet added that it doesn’t make sense to only tax those who have a W-2 while not taxing businesses income. And, while a property tax reduction could help some businesses, “our membership almost uniformly opposes an income tax.”