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Governor's sales tax plan would have killed jobs
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from NewsLink, Vol. 5, No. 3, Spring 2001
In a state known for its tax resistance, imposing a sales tax is no small challenge. New Hampshire Governor Jeanne Shaheen learned this when she backed a plan to establish a 2.5% sales tax as part of her EXCEL NH program to fund state public schools.
Governor Shaheen's plan, announced in February 2001 as a “long-term funding and improvement solution” for public schools, was expected, according to the governor, to yield $365 million in net revenue in FY 2003. She based her projections on estimates by the New Hampshire Department of Revenue Administration and by her blue ribbon tax commission showing that her tax package, which included the 2.5% sales tax, would cover the state's education costs.
She had the support of educators and manufacturing groups, who saw a sales tax as the least objectionable method of raising the funds.
Retailers, however, disagreed with her. They felt the plan would result in a loss of sales from out-of-state residents who shop in New Hampshire to avoid sales taxes. This would lead to greater revenue loss for the state than anticipated.
In March, the Beacon Hill Institute joined the debate. A BHI FaxSheet, “Sales Tax Facts: Revenue Gains and Job Losses in New Hampshire,” (PDF format) showed that the retailers were correct. BHI found that the losses would be broader than expected. This is because when people come to New Hampshire to shop, they generally spend money on taxable items like gasoline, tobacco, alcohol and meals. Removing this tax revenue would make the “collateral revenue losses” to the state much higher.
According to BHI, New Hampshire could expect to add no more than $288 million to its FY 2003 revenue collections by imposing the tax. If the e conomy were to slow below its expected normal rate of growth, the state would add no more than $283 million to its revenue collections in FY 2003.
This would result in the loss of almost 33,000 jobs, of which more than 22,000 would be in retail, wholesale and transportation.
On March 28, at a standing-room-only legislative hearing in Concord, Governor Shaheen made an impassioned case in favor of the sales tax. Her pronouncements followed a vigorous advertising campaign aimed at winning public support for the tax. “Putting off the hard choices until another year will not make [funding education] go away,” she said.
BHI Executive Director David G. Tuerck strongly opposed the sales tax in his testimony. In addition to costing NH jobs, he pointed out that the sales tax would generate $80 million less in revenue than expected. “We can't find evidence that imposing a sales tax will do what the Governor says it will do. Indeed, it appears that in terms of funding education, this plan is clearly not the way to go.”
The New Hampshire legislature apparently agreed. In an April 18 vote, it trounced the sales tax proposal 235 to 148.
In a related development, the New Hampshire Supreme Court upheld the constitutionality of a statewide property tax that collected $800 million over the last two years to specifically fund education.
Though the threat of a sales tax has gone away, funding education remains. Said Tuerck, “There are other ways to do this. Spending cuts remain an option, as do small increases in selective taxes.” Also being considered as a possibility: an income tax. New Hampshire is one of eight states with no income tax. New Hampshire residents may be faced with the possibility of a change down the road.
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2003. All rights reserved.
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