Blowin’ in the Wind is a new column by Michael Kitch. He has been writing in New Hampshire since 1982, sandwiching stints with either NH Times, NH Business Review and Laconia Daily Sun around spells within corporate communications and on the staff of the state Senate.

Blowin’ in the Wind
By Michael Kitch

For more than half-a-century New Hampshire politics and government have been overshadowed by the Pledge, the vow by candidates seeking state office to neither propose nor endorse a broad-based sales or income tax.

The Pledge sprang from the Republican gubernatorial primary of 1972 between the incumbent Walter Peterson, a thoughtful, pragmatic centrist, and Meldrim Thomson, an arch conservative firebrand who he had beaten twice before.

The state was growing rapidly, but saddled with an archaic tax structure, which Peterson set out to reform. He began by replacing 13 taxes on commercial enterprises with one tax on business profits, which remains a mainstay of the revenue stream to this day. He understood the inequitable effects of excessive property taxes and convened a special session of the Legislature to consider their impact on cities and towns. And he proposed a personal income tax of three percent.

The Pledge quickly became the theme of Thomson’s campaign, amplified by the shrill voice of William Loeb, the owner of the Manchester Union-Leader, the state’s largest newspaper. It remains the credo of New Hampshire Republicans and is echoed by the ruling faction of the Democratic Party.

In 2012, Republican lawmakers, emboldened by commanding majorities of 298 to 102 in the House and 20 to 4 in the Senate, sought to add the Pledge to the state Constitution. The measure carried the House by 257 to 101 and the Senate by 20 to 4 and was put to voters as a constitutional amendment, which failed to win the requisite two-thirds majority.

Grant Bosse, who then served on the staff of the Republican House Speaker, agreed an income tax was “a really bad idea,” but cautioned against pursuing the amendment. “Republicans hoping to hold on to power,” he remarked, “should cherish the enormous advantage that the threat of an income tax gives them.” Time has proved Bosse’s insight a sound one, effectively staying the Democrats from mounting a challenge to the GOP’s grip on fiscal policy. 

Taking the Pledge, Democrat Hugh Gallen defeated Thomson in 1978 and again in 1980, even as Republican Ronald Reagan easily carried the state in the presidential election. Gallen shunned the Pledge in 1982, calling the tax system “obsolete,” and was denied a third term by John Sununu, the elder. Gallen told the New York Times his refusal to take the Pledge cost him the election.

Since then only seven Democratic candidates for governor have shunned the Pledge while only three have openly championed an income tax — Arnie Arnesen, Mark Fernald and Beverly Hollingworth.

Jeanne Shaheen, who after being elected twice taking the Pledge and nixing an income tax bill won a third term without it. John Lynch and Maggie Hassan cleaved to the Pledge and won four and two terms respectively.

While Peterson understood the pernicious effects of excessive reliance on property taxes his successors have doubled down on them, effectively treating cities, towns and counties as cookie jars to be drawn from to balance state budgets and fund costly state obligations, especially public education.

For years lawmakers strapped by tight budgets have balanced state budgets by reneging on assurances of state aid to cities, towns and counties and downshifting costs to local property taxpayers. Municipal revenue sharing, originally introduced in 1969, was suspended in 2010 at an annual loss to municipalities and counties of $25 million, which amounted to $400 million by 2025.

Legislation adopted in 1993 prescribed a formula for sharing revenue from the Meals and Rentals Tax, which over time would provide the state 60 percent and the municipalities 40 percent of the revenue. The municipal share topped out at 29 percent in 2010, then the formula was suspended, costing municipalities $189 million between 2010 and 2021.

Beginning in 1940, the state has funded a portion of the contribution to NH Retirement System for teachers, police and firefighters, which in 1977 was set at 35 percent. Municipalities, counties and school districts paid 100 percent for all other employees enrolled in the system. The state trimmed its contribution to 30 percent in 2010, to 25 percent in 2011 and to $3.5 million in 2012, before eliminating it altogether in 2013.

Above all, property taxes, local and state, fund 70 percent of the cost of public education, which is now approaching $4 billion a year. Since property values vary widely among municipalities, property taxes are levied at correspondingly different rates, which impose not only heavy but also inequitable tax burdens on property owners. In turn inequitable taxation fosters inequitable educational opportunities and academic achievement of students in property-poor municipalities across the state, which serve some three-quarters of public school students.

In the 1990s the NH Supreme Court ruled that that the state, not local taxpayers, must bear the cost of an adequate education for every child and that any property taxes levied to fulfill this obligation must be “equal in valuation and uniform in rate” throughout the state.

Committed or cowed by the Pledge lawmakers, Republican and Democratic alike, have yet to craft legislation to comply with the court’s order. Two lawsuits, one challenging the paucity of state aid to public schools and another challenging both the sufficiency of the state share of school funding and the constitutionality of local school property taxes are pending in the courts.

Although the state and local tax burden ranks among the lowest in the country, no state draws more revenue from property taxes. The NH Fiscal Policy Institute reported that in 2023 municipalities and counties collected $4.273 billion in property taxes, more than the sum of all state tax revenue put together. Altogether property taxes raised 59 percent of all taxes collected in the state, the greatest share of any state by a significant margin.

While New Hampshire ranks among the twenty states with the lowest per capita tax burdens, its heavy reliance on property taxes places it among the twenty states with the most regressive tax systems, according to data compiled by the Institute on Taxation and Economic Policy.

With the recent repeal of the Interest and Dividends Tax, the NH Fiscal Policy Institute projected that nearly nine of every ten dollars in reduced taxes would flow to those in the highest income bracket while the top one percent, earning at least $1.8 million, would reap nearly half the benefits.

With state revenues slipping and state obligations rising Governor Ayotte and the Republican Legislature are again pruning the state budget. Meanwhile at town meetings around the state and budget hearings at the State House voters are urging lawmakers to adequately fund public services and reduce the burden of property taxes. 

New Hampshire is flirting with another Peterson moment without the political will to meet it.