Thursday, October 22, 2009

Taxes in New Hampshire - Tax summit meeting day 2

Prof. Ross Gittell: The [most] relevant and important question is how to ensure that NH’s tax structure supports what “we” want the future economy to be.

In general, today's tax summit presentations contained a bit more advocacy than yesterday's, but overall they were still very informative and thought provoking. As with yesterday, the NH Watchdog blog has a very detailed (and still mostly non-partisan) recap of the day's session.

The challenge to our legislators to envision NH's desired future economy came up repeatedly during both days. One of today's presenters, Union Leader Columnist Charlie Arlinghaus, provided some historical perspective on successes NH has had with changing the structure of the tax code to achieve desired economic results.

According to Arlinghaus, the business profits tax (BPT) and Business Enterprise Tax (BET) are good examples of strategic tax restructuring in NH's past. These two taxes, implemented in 1970 and 1993, replaced taxes that were discouraging high-tech businesses from locating in NH. Both of these taxes were enacted as part of revenue neutral restructuring efforts. The BPT in particular represented a major shift for NH, away from taxing businesses based on their assets and instead taxing them based on their profits. This change is credited with helping NH develop and maintain its strong high-tech economy in the 80s and 90s.

Remember my earlier MVP Series post on Lonza Biologics? It's hard to imagine Lonza building their $110 million manufacturing plant in Portsmouth if these earlier structural tax changes hadn't occurred. (Although, several panelists did warn that today's business tax rates are on the high side and could now be hurting our competitiveness).

Gary Hirshberg, President of Stonyfield Farm presented a different spin on how to create a tax structure that helps forge the economy we desire. He believes NH should act intentionally and strategically to create a tax climate that encourages environmentally responsible activity while discouraging activity that harms our natural resources. His ideas included pollution taxes and targeted tax credits to encourage green business practices. Common Man Restaurant owner Alex Ray agreed with Hirshberg's ideas, and added that NH's tax structure should help preserve our natural resources and beauty.

Laurel Redden, of the Granite State Fair Tax Coalition, emphasized tax fairness and our heavy reliance on local property taxes to fund education. Redden called this reliance unfair, unjust, and inadequate. Interestingly, until today, the focus of the panelists was on tax structures to fund expenditures that are already being made at the state level. The idea that the state should increase the scope of its responsibility and contribute more for k-12 education to reduce local property taxes was hardly mentioned in yesterday's presentations. Today, several of the presenters hit on this theme.

Out of the entire summit, there was one presentation that left me a bit confused. It was a presentation by demographer Peter Francese, of Exeter. Francese presented statistics demonstrating that New Hampshire is now the forth oldest state in the country. He attributed this trend partly to the boom in age 55+ housing that many communities are encouraging to broaden their property tax base. Since retiree communities don't allow children, they typically don't increase local tax burdens as much as other development. That all made sense.

Next, Francese warned that the NH legislature "wouldn't be able to increase taxes enough" to pay for the coming onslaught of retirees into the state. This was the part that confused me. My understanding is that population trends between various age groups aren't a zero sum game. Attracting more retirees to the state doesn't have to come at the expense of attracting younger workers. In-migration to the state by either group is a good thing and both should be encouraged, IMO.

To me, in-migrating retirees are like fully charged batteries, They plug themselves into the local economy and continuously feed money to local businesses. Their expenses are generally paid-in-full by Social Security, Medicare, and their own nest-eggs. Sure, they don't directly increase economic production (like residents that work out of state), but they do increase local demand and this should help local businesses and increase employment in the state. In particular, they increase demand in the health-care sector, and these jobs are typically high paying.

I must be missing something on this because of all demographics, I just don't see the burden that in-migrating retirees could place on the state or the local communities. Mr. Francese mentioned that low-income retirees often receive property tax abatements, but the evidence that I've seen is that these abatements are a tiny percent of total property tax bills (usually a few hundred dollars). I just don't believe that these small abatements are offsetting the other benefits that retiree in-migration brings to the state and local communities.

OTOH, I do see an issue if we aren't successful in attracting enough young workers (here I agree with Mr. Francese). IMO, it's very important that we don't enact policies that discourage young workers from staying here or migrating in to NH. My point is just that I don't see the problem as "too many old people." Rather, it's a problem of not enough young people.

Ok. I think I've rambled on enough about the tax summit. Audio for the entire summit and all of the presentations are now available on the House Ways & Means website.

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