January 28, 2008

New Hampshire: A Granite State Income Tax?

Could New Hampshire be the next state to enact a broad-based personal income tax? The Granite State is one of only nine states that do not currently levy such a tax, and an ongoing school funding debate is leading otherwise tax-averse lawmakers to look for ideas on how adequate school funding could be paid for. An excellent op-ed by state Representative Jessie Osborne asks the hard questions.

Osborne isn't shy on this point, having introduced legislation this year that would take a bold and progressive step towards a more sustainable-- and equitable-- New Hampshire tax system. In the rep's own words, here's the plan:
HB 1593 establishes a combination statewide "enhanced education" property tax at $5.50 per $1,000 of equalized assessed valuation, with a $200,000 homestead exemption; and a 4 percent education income tax with liberal income exemptions and a credit for the statewide property tax the household pays. These taxes replace the current interest & dividends tax and business enterprise tax, which are both repealed totally; the bill also reduces the business profits tax to 7.5 percent. The bill also contains a circuit breaker (abatement) program for taxpayers whose total property tax bill (municipal, school, county and statewide property taxes) exceed 8 percent of household income. In short, this bill bases the financing of education on ability to pay.
Which sounds like a great place to start. The "ability to pay" goal has two important components here.

First, and perhaps most important, the bill would take an existing tax that is notoriously insensitive to "ability to pay" considerations, the property tax, and add a feature (the circuit breaker) that would go a long way toward solving this problem.

Second, the bill would enact what is generally recognized as the fairest tax out there-- a broad-based personal income tax.

Osborne has no illusions that the bill could survive a veto threat this year, but is to be commended for introducing legislation that gets right at the heart of what's wrong with the current New Hampshire tax system.

The full text of the bill can be found here.


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