Distant Dome: Cutting Taxes Has Consequences

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Garry Rayno is InDepthNH.org's State House Bureau Chief. He is pictured in the press room at the State House in Concord.


The campaign season is in high gear with the 2022 election eight months away so you want to carefully consider what is said and proposed.

Politics today is not policies, ideas and open discussions, but soundbites, promoting the brand and demonizing the opposition.

For a candidate, it is very easy and tempting to suggest proposals that will be attractive to the base and grab the attention of the largest group of voters in the state, the independents or undeclared voters.

With fewer journalists working in New Hampshire, the idea is often picked up and published or produced without a thorough investigation of what it really entailed and the implications.

For example last week Gov. Chris Sununu threw out the possibility of suspending the rooms and meals tax this summer at the height of the tourist influx and also eliminating the gas tax as well.

This would be done, he said, to help offset the high rate of inflation that is plaguing consumers.

He was not the only politician running for reelection to propose suspending taxes, U.S. Sen. Maggie Hassan proposed suspending the federal gas tax for the same reasons.

Both statements are bound to be great soundbites for political ads and received headlines seen by citizens facing inflation approaching 8 percent, the highest in 40 years, although gas prices were similar in the early 2000s when the Middle East exploded in war.

Gas taxes are much like value added taxes, you don’t really see them at the pump just the price per gallon.

Like value added taxes there is not a separate line on the receipt from the gas pump telling you how much of what you paid is the state gas tax, the federal gas tax or the taxes you paid.

Because that information is not available, it may be eliminated, but that does not mean the price per gallon goes down an equal amount.

Suspending gas taxes would be an easy way to improve the very small margins sellers make on sales and no one would really know, but would see a reduced price.

The biggest problem with suspending gas taxes during the height of the travel season is the amount of money that would be lost.

The federal and state money is used to build and maintain the nation’s highway systems both roads and bridges.

The federal gas tax of 18.4 cents per gallon for gasoline and 24.4 cents a gallon for diesel was last raised on Oct. 1 1993, while inflation has increased 77 percent since then. That means only about one-quarter of the construction on federal highways can be done today compared to what was done 39 years ago.

The New Hampshire gas tax was raised from 18 cents per gallon to 22.2 cents in 2014.

The tax money supports federal, state and local highway systems and the cost of construction was going up steadily before the pandemic hit and it is far more expensive now.

Under the current state budget, about $4 million a year from the state gas tax pays for municipal block grants and about $7 million a year for municipal bridge projects.

Current collections show the state taking in $169.7 million for the highway fund which includes the gas tax, slightly ahead of projections of $164.2 million and about $8 million more than a year ago.

A good portion of the gas tax money is raised during the summer months when it would be suspended.

There is also, looking down the road, the repayment of the $200 million in Transportation Infrastructure Finance and Improvement Act bonds from the federal government at a low 1.1 interest rate.

The bonds were issued when the tax was raised so the I-93 expansion project from Manchester to the Massachusetts border could be completed while maintaining the state and local maintenance aid programs.

The state will need all the money it can secure for the Highway Fund once those bonds come due in the next biennial budget cycle.

Rooms and Meals

The rooms and meals tax revenue is about a month behind when it is really collected, with July, August, September and October producing between $23  million and $27 million a month for activity in June, July, August and September.

The total is expected to be over $100 million for those four months.

The rooms and meals tax was created with the last major overhaul of the state’s tax system under former Gov. Walter Peterson and replaced among other levies the stock and trade tax which was collected by cities and towns.

In return, the cities and towns were promised 40 percent of the amount collected to be distributed as revenue sharing.

As you might suspect, the state never lived up to that amount and suspended revenue sharing when the great recession hit about a decade ago. It was reinstated at a lower level in the fiscal 2019-2020 budget.

The current budget lowered the promise to 30 percent and  nearly doubled the amount for the biennium by using surplus funds to supplement the rooms and meals money.

If the tax is suspended, the money will not be going to revenue sharing with cities and towns as well as the state.

The state has a surplus so it could make up the difference, but that is not guaranteed. And the cities and towns have already included the state money in their budgets, so not receiving it could increase property taxes to make up the difference.

Also the restaurant and hotel owners and rental car agents are paid 3 percent for collecting the tax and sending it to Concord, so they would not receive their portion during peak money season.

And  a percentage of the rooms and meals tax goes into the Education Trust Fund to pay for adequacy grants to school districts and the state’s new voucher program called education freedom accounts

To date this fiscal year, that portion of the rooms and meals tax paid to the trust fund is $5.9 million, which is $1.3 million less than budget writers estimated it would be.

So suspending the rooms and meals tax would exacerbate the shortfall at a time when the voucher program will spend $9 million of the fund that was not budgeted.

Again the state surplus can probably take care of the shortfall but it is not guaranteed.

Tax Changes

A more general problem with cutting or suspending taxes to address inflation is the next fiscal year.

The biggest, single source of revenue for the state are its two business taxes the business profits tax and the business enterprise tax, one largely hits national and multinational corporations while the enterprise tax is paid by almost all businesses in New Hampshire big or small.

Next fiscal year major changes will be made in determining the business profits tax assessment. For the first time, the state will use the single sales factor model, which may mean some of the biggest payers now will be paying far less in the future.

Members of the House Ways and Means expressed concerns last week about what the future revenue picture could be with a number of changes in businesses taxes next fiscal year.

While cutting taxes also is a great soundbite, particularly for anyone running for reelection or election, it may not be the best thing for the fiscal health of the state.

You have to remember the state’s actual motto, “Don’t tax me, tax the guy behind the tree.”
And that is what happens at the height of the tourist season when the state collects lots of money from out-of-staters visiting the Granite State. 

Is it really worth giving up the money and the subsequent problems for political grandstanding? 

Garry Rayno may be reached at garry.rayno@yahoo.com.

Distant Dome by veteran journalist Garry Rayno explores a broader perspective on the State House and state happenings for InDepthNH.org. Over his three-decade career, Rayno covered the NH State House for the New Hampshire Union Leader and Foster’s Daily Democrat. During his career, his coverage spanned the news spectrum, from local planning, school and select boards, to national issues such as electric industry deregulation and Presidential primaries. Rayno lives with his wife Carolyn in New London.

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