Supporters of the recently enacted State of New Hampshire budget were quick to claim that it was responsible and that they made tough decisions during difficult economic times. Talk about myth and spin - this budget fits the bill - literally!

Myth #1:  State spending will decrease in the next two years.  Sounds great doesn't it? Unfortunately, this is flat out wrong. Here are the facts: According to the Legislative Budget Assistant--the non-partisan office that is charged with preparing budget figures--total authorized spending in the current budget, which will close June 30, is $10.408 billion. The budget that was just approved and will begin July 1 authorizes spending of $11.499 billion, an increase of $1.091 billion or 10.48% by every known method of mathematics! How can these budget supporters possibly justify this huge increase when people are struggling to pay their bills and now will struggle to pay the higher taxes and fees contained in the budget? This 10.48% increase also comes at a time when other states around the nation on average are actually reducing spending!

Myth #2: The new tax on campsites closes a loophole. If budget writers really thought this tax on camping was closing a loophole it is hard to imagine why they would have introduced it in the wee hours of the night without a public hearing. The fact is that it is a brand new 9% tax on camping. It is positively amazing how supporters of this budget claim to be the politicians that support the little guy.  This budget not only taxes camping, it hikes taxes or fees on meals, tobacco, boat & car registration, salt water fishing licenses and most importantly, property taxes. Nothing can hide the fact that New Hampshire citizens of modest means will be digging deeper into their already empty wallets.

Myth#3: The tax on limited liability companies (LLCs) also closes a loophole.  Again, if this was a loophole – why no public hearing? This tax will impact approximately 10,000 small business owners organized as LLCs who will now be subject to the 5% Interest and Dividends Tax.  Without any rules yet promulgated, who knows if this will be a tax on interest or dividends---or a tax on the compensation a business owner pays him or herself. If this taxes a business owner’s compensation in the same way the Business Profits tax is applied -- against so-called excessive compensation -- then New Hampshire will be sending a terrible message to those very people we want to invest in the state and create jobs. Perhaps the supporters of this budget are spinning this as a business owner loophole because in reality they want an income tax!

Myth #4: If the budget were not enacted the cost to the State under a continuing resolution to keep government running would be $11 million per month. This takes the cake for spinning a myth. There is no reason whatsoever that spending for a short period could not have been authorized at 98% of existing levels to ensure deficits were not created. This is precisely what could have been done for the entire budget in order to avoid all the tax and fee hikes that will hurt working families and small businesses.

Myth #5: This budget is balanced. Whether the budget is actually balanced will not be known for some time. However, this budget relies on $75 million of magically inflated revenue estimates and a $110 million raid on a fund paid into by doctors to reduce medical liability costs. This raid is already the subject of litigation and the STATE JUST LOST THE FIRST ROUND IN COURT! Given these problems, it is hard to imagine the budget being balanced when it closes in two years.

Unfortunately, the really difficult choices were left for the next budget when the $500 million dollars of one-time revenue sources runs dry. The stage will be set in the next budget for the penultimate debate of whether this state adopts an income or sales tax or both. Even if the state were to allow expanded gaming, it will not be enough to fill this spending sink hole!

My grateful thanks to everyone who has written me with comments on these email updates. I appreciate all the information and ideas that you have provided. With the close of the legislative session in Concord, I won’t email updates until the fall. Please however monitor my web-site www.jebforstatesenate.com for occasional discussion about issues ranging from global warming legislation to healthcare.  Hope to see you climbing in the White Mountains this summer!  

Supporters of the recently enacted State of New Hampshire budget were quick to claim that it was responsible and that they made tough decisions during difficult economic times. Talk about myth and spin - this budget fits the bill - literally!

Myth #1:  State spending will decrease in the next two years.  Sounds great doesn't it? Unfortunately, this is flat out wrong. Here are the facts: According to the Legislative Budget Assistant--the non-partisan office that is charged with preparing budget figures--total authorized spending in the current budget, which will close June 30, is $10.408 billion. The budget that was just approved and will begin July 1 authorizes spending of $11.499 billion, an increase of $1.091 billion or 10.48% by every known method of mathematics! How can these budget supporters possibly justify this huge increase when people are struggling to pay their bills and now will struggle to pay the higher taxes and fees contained in the budget? This 10.48% increase also comes at a time when other states around the nation on average are actually reducing spending!

Myth #2: The new tax on campsites closes a loophole. If budget writers really thought this tax on camping was closing a loophole it is hard to imagine why they would have introduced it in the wee hours of the night without a public hearing. The fact is that it is a brand new 9% tax on camping. It is positively amazing how supporters of this budget claim to be the politicians that support the little guy.  This budget not only taxes camping, it hikes taxes or fees on meals, tobacco, boat & car registration, salt water fishing licenses and most importantly, property taxes. Nothing can hide the fact that New Hampshire citizens of modest means will be digging deeper into their already empty wallets.

Myth#3: The tax on limited liability companies (LLCs) also closes a loophole.  Again, if this was a loophole – why no public hearing? This tax will impact approximately 10,000 small business owners organized as LLCs who will now be subject to the 5% Interest and Dividends Tax.  Without any rules yet promulgated, who knows if this will be a tax on interest or dividends---or a tax on the compensation a business owner pays him or herself. If this taxes a business owner’s compensation in the same way the Business Profits tax is applied -- against so-called excessive compensation -- then New Hampshire will be sending a terrible message to those very people we want to invest in the state and create jobs. Perhaps the supporters of this budget are spinning this as a business owner loophole because in reality they want an income tax!

Myth #4: If the budget were not enacted the cost to the State under a continuing resolution to keep government running would be $11 million per month. This takes the cake for spinning a myth. There is no reason whatsoever that spending for a short period could not have been authorized at 98% of existing levels to ensure deficits were not created. This is precisely what could have been done for the entire budget in order to avoid all the tax and fee hikes that will hurt working families and small businesses.

Myth #5: This budget is balanced. Whether the budget is actually balanced will not be known for some time. However, this budget relies on $75 million of magically inflated revenue estimates and a $110 million raid on a fund paid into by doctors to reduce medical liability costs. This raid is already the subject of litigation and the STATE JUST LOST THE FIRST ROUND IN COURT! Given these problems, it is hard to imagine the budget being balanced when it closes in two years.

Unfortunately, the really difficult choices were left for the next budget when the $500 million dollars of one-time revenue sources runs dry. The stage will be set in the next budget for the penultimate debate of whether this state adopts an income or sales tax or both. Even if the state were to allow expanded gaming, it will not be enough to fill this spending sink hole!

My grateful thanks to everyone who has written me with comments on these email updates. I appreciate all the information and ideas that you have provided. With the close of the legislative session in Concord, I won’t email updates until the fall. Please however monitor my web-site www.jebforstatesenate.com for occasional discussion about issues ranging from global warming legislation to healthcare.  Hope to see you climbing in the White Mountains this summer!  

After two marathon weeks of discussions between House and Senate members charged with negotiating a budget, early Friday morning a package emerged.  Its fate is uncertain as the full House and Senate must pass it before it reaches Governor Lynch for signature. Counting votes before the June 24th Session will be almost as daunting as reaching this compromise -- anything can and may well happen.

Let's first focus on what is in this package and what is not, then on the impact it will have on people and businesses, and lastly how this budget will affect New Hampshire’s future.

Like any compromise, this budget is a mixed bag of good news and bad news.  Several very controversial new taxes and tax hikes that had previously been approved by either the House or Senate, were dropped. These include the capital gains tax, death tax, gas tax, insurance premium tax, and a specific increase in business taxes by loss of a tax credit. All of these taxes would have directly undermined New Hampshire’s ability to attract businesses, investors, or visitors to our state. Also dropped from the final package were expanded gambling and a controversial plan to use toll revenue for highway improvements all over the state. Several taxes rumored for late consideration never made the final package including an entertainment tax and a tax on mortgage re-financing.

There are new taxes galore however.  The tobacco tax will go up by 45 cents -- the fourth hike in five years.  Non-smokers may generally be callous to the impact this tax has, but smokers, especially low income people, justifiably believe they are carrying far more than their fair share of the tax burden.  This increase will also undermine the cross border advantage New Hampshire has long enjoyed – attracting visitors to purchase tobacco products here and fill our revenue coffers. Convenience stores near the borders will be impacted, and meeting our revenue goals with this tax hike is questionable.

Any gambling winnings will be taxed at 10% including those garnered outside of New Hampshire. Will we be sending auditors to Foxwoods and Las Vegas -- or charitable events in New Hampshire -- to guarantee tax collection?  Under those circumstances, is the $14 million of anticipated revenue farfetched?

The Rooms and Meals tax got increased 12.5%. I have written before that this huge increase will make our states less competitive for tours, vacations, conventions, and weddings. But budget writers slapped this tax for the first time on campgrounds – without a public hearing. Campground owners are outraged at this abuse of process. One owner felt so betrayed by the Legislature not having a public hearing, he told me the only people qualified to serve in the Statehouse are the janitors.  Campers arriving this summer may be just as angry when they discover this new "marshmallow tax". Again, revenue projections may suffer if campers take their marshmallows elsewhere.

Business owners were certainly dinged too.  Business owners already are subject to an 8.5% tax on profits as well as a .75% tax on all payroll expenses.  Now however, business owners organized as limited liability companies or as partnerships will be subject to an additional 5% tax on any income distributed to an owner. This significant change in the 1923 Interest and Dividends tax was also snuck in at the last minute – again with no public hearing. The estimate is that this change will raise $30 million of new taxes from business over the next two years.  This dramatic increase in taxes on small business may prove to the biggest $30 million mistake that New Hampshire could make -- as it threatens to undermine New Hampshire’s ability to build new jobs at exactly the wrong time.

The ‘rest of the story’ behind this last minute business tax increase is that it is just the latest step by the New Hampshire Department of Revenue Administration to strangle small business in New Hampshire.  Desperate to raise revenue, DRA has recently taken it upon itself to essentially determine how much compensation a business owner may pay him or herself.  Should the business owner pay him or herself additional compensation beyond what DRA has pre-determined is allowed, the DRA with bureaucratic hubris will simply assesses the 8.5% Business Profits Tax on this so called excess compensation.

If people are concerned about the Administration in Washington determining pay levels for executives – well it has been happening here in New Hampshire – right under our noses – with questionable legal authority for DRA to determine what is profit and what is income for a business owner.

This attack against successful small business owners, hidden from the light of day behind the audit curtain, is by itself a terrible threat to New Hampshire’s ability to build new jobs here.  But now under this budget it gets worse.  The business owner will pay a new 5% tax on income on top of the 8.5% tax on the balance of income that DRA has determined is excessive. The Legislature may say it wants to attract business to New Hampshire, but in fact, the Legislature is sending business a strong signal: move to Massachusetts. When tax policy in Massachusetts is more attractive than ours—that is dangerous!  The pink slips will follow for NH workers.

It is not just taxes – fees are going up dramatically. Drivers will pay at least $30 to $75 more for registering a car. Boat registration fees double.  Condominium registrations will nearly double. There is even a new salt water fishing license fee and a permit to carry a concealed weapon for out of staters skyrockets from $20 to $100 which means people will no longer register firearms in NH and we will likely lose money.

What about property taxes? This budget spreads the pain to them as well as property taxes will climb across New Hampshire by nearly $90 million as this budget downshifts traditional state responsibilities onto the backs of already struggling property owners.

With all these new taxes, higher fees, and soaring property taxes – what happened to spending levels?  I have maintained throughout this budget process that spending needs to be reduced to avoid raising taxes on families, small business, and property owners struggling to stay afloat.  While this budget did make some last minute cuts to programs and personnel – it was still not enough in my view. Overall spending will still increase 10.5%.

Governor Lynch warned that projected revenue is going to fall to 2004 levels and will be 10% lower than 2008 levels.  Business tax revenues alone are currently some 27% below the projections for expected revenue.

But budget writers were still short and desperate for revenue. So despite the Governor’s warning, budget writers magically inflated revenue expectations by $75 million in order to sustain spending.  Lastly, $90 million of traditional state expenditures to reimburse school districts for construction projects was moved from the operating budget to the capital budget – meaning this $90 million will be borrowed! Experts have warned that borrowing of this magnitude is unsustainable.

So what does all this mean?  Economically strapped New Hampshire residents will have to dig deeper into wallets filled with fumes rather than cash. The business climate will suffer significantly at a time that nearly 50,000 New Hampshire people are out of work and that New Hampshire’s unemployment picture has also darkened relative to other states.

But what has gone under the radar is this budget’s impact on future budgets.  Not enough people realize that about $500 million of spending in this budget depends directly upon one time sources of revenue: federal stimulus funding, increased federal Medicaid funding, and a $110 million raid of New Hampshire doctor’s medical liability funds. (Litigation filed against this raid as well as the $75 million magical revenue projections are likely to leave this budget with a gaping deficit.)  Can New Hampshire realistically expect future federal largess as Congress stares straight into the white eyes of indefinite trillion dollar federal deficits.

This $500 million one-time spending crater is a ticking time bomb for the next budget. Will the re-financing tax, the entertainment tax, the gas tax, the capital gains tax, the death tax rise from the dead? Will existing taxes on business, hospitality, tobacco, interest and dividends, real estate sales, and communications continue on their relentless climb? Will the state dump more costs onto property taxpayers? Or will it be a sales tax or an income tax---how about both?

That is the bleak future for New Hampshire families, businesses, and property owners unless state spending, which will have grown by nearly 24% in three budget cycles, is not brought under control.

The legislative session may be winding down rapidly but the greatest issue of all, the budget, is far from being resolved. The budget debate comes against the backdrop of a distressed economy with high unemployment rates and families and businesses struggling to make ends meet.  Will the conference committee on the budget make this situation worse?

Unfortunately, despite our Live Free of Die motto, this debate is not between those who would frugally limit government and those who would inexorably allow it to grow. Rather, it could be called the Great Tax Debate as various factions of the legislature seek to add their preferred tax hikes to a budget bursting with higher taxes and fees.

Why is New Hampshire in such a tax predicament? Some would argue the recession and falling revenues to state coffers is to blame. That's only part of the story however, as Paul Harvey would say ‘the rest of the story’ is that spending in New Hampshire has increased dramatically.

New Hampshire’s current budget allowed total spending of $10.4 billion up from $9.36 billion in the prior budget. The budget the Senate recently passed proposes total spending of $11.6 billion and the House passed budget was only marginally lower. Bottom line: if this spending plan is ratified, total spending will have increased 23.8% over 3 budgets. It is hard to imagine that the average family or business in New Hampshire has seen their income increase by anything approaching that figure…..that is if they have any income left.

What makes these increases even more staggering is that spending is going down in other states around the country. The bi-partisan National Governor’s Association (www.nga.org) recently released a study that highlights an average 2.2% decline in state spending around the nation in 2009. Furthermore, our nation’s governors are recommending additional spending reductions of 2.5% this year.  But, not New Hampshire, as there is little disagreement among Democratic conference committee members that total spending should increase by $1.2 billion.

With the exception of a few spending reductions such as closing the Laconia State Prison,  the budget debate focuses almost exclusively on new or increased taxes. The House has passed a new tax on capital gains and estates, as well as increases on tobacco products, rooms and meals, insurance premiums, gambling winnings and gasoline.  The Senate has passed expanded gambling for additional revenue, as well as increased taxes on tobacco, rooms and meals, and new onerous business taxes. Both budgets have numerous fee increases. Both budgets raid a fund paid into by doctors designed to keep medical malpractice rates in line. The $110 million raid of this fund will trigger an all but certain lawsuit which doctors stand an excellent chance of winning – because in reality it’s their money.  More cynically both budgets underfund to varying degrees the state’s historic commitment to assisting towns and cities. So property taxpayers are going to be left out in the cold without a seat in this game of musical tax chairs.

Sound chaotic and controversial? It is and deadlines are looming. The package must first be agreed to by the nine legislators on the Committee of Conference, chosen to resolve the differences between the two budgets. Then both bodies must ratify the final package. But the House previously killed new gambling. Senators don’t like the capital gains and estate taxes. The House wants a gas tax. The Senate is ok with tolls. The Senate wants business taxes, the House would tax insurance premiums.  And so it goes --- with precious little talk about decreasing the proposed $1.2 billion total spending increase. 

The political reality is: neither plan may prevail. So rumors swirl of a third tax stalking horse waiting in the wings. Details are sketchy, but two new taxes are being discussed behind closed doors.

The first tax proposal would apply the Real Estate Transfer Tax to mortgage refinancing. In other words, as people try to refinance to lower mortgage payments in order to keep their homes, the state would impose an additional tax on them.  At a time when Washington and states around us are adopting policies to help keep people in their homes, Concord is considering slapping a new tax on a family’s mortgage pain. The Portsmouth Herald astutely proclaimed this idea “completely off the wall.”  Amazingly, proponents of this tax have not heard about what is happening in the financial world. The headline in the June 11th Wall Street Journal proclaimed that interest rate hikes (the result of $2 trillion federal deficits) are not only clouding economic recovery but “choking off a refinance wave.” This would be a very painful tax for struggling NH homeowners. It would undermine recovery of housing prices, and would not likely produce the revenue expected.

The second tax in the closet is an attempt to apply the 5% Interest and Dividend Tax to limited liability corporations. This tax would essentially be an income tax on the owners or partners of many New Hampshire’s small businesses. For business owners this is just a new déjà-vu.  They already pay a .75% payroll tax on employee salaries called the Business Enterprise Tax.  Business owners pay an 8.5% tax on profits. How does adding yet another levy these taxes make New Hampshire attractive for business?

Jim Roche, the President of New Hampshire Business and Industry Association called this proposal “alarming” and went on to say, “at a time when businesses up and down every Main Street in New Hampshire are cutting expenses and making painful lay-off decisions in response to the worst economic malaise since the Great Depression, it is astonishing to witness state policy leaders on the cusp of making matters worse.”

And just for good measure….the proposed hike in the Rooms and Meals tax may not raise enough revenue and could be jacked even higher…. at a time that one of NH’s largest industries, hospitality, must compete against other states for declining consumer spending.

So what about cutting spending?  Those like myself who have proposed across the board cuts have been termed simplistic or just the ‘party of no’. Meanwhile despite the spin, these amendments to reduce spending in both the House and Senate have been defeated on a partisan basis. Yet amazingly, when Senator Sheila Roberge and I proposed a specific cut, ending the subsidy on dog racing that costs taxpayers $1 million, that too, was defeated.

There is no question that cutting spending is difficult.  But what’s the alternative – a $1.2 billion increase in spending in New Hampshire while other states are cutting spending? Tax hikes to pay for state spending will only undermine New Hampshire’s competitiveness and ability to grow jobs. Spending cuts may be difficult, but are necessary. Spending cuts are also what New Hampshire individuals, families, and businesses are doing to survive. They are not claiming it can’t be done – they don’t have that option.  Budget writers in Concord should take heed.

Last week I titled my blog: Time to Talk Taxes. This week’s title is unfortunately: Time to Pay Taxes.

Just as easily it could be:  New Spending  = New Taxes = Job Losses.

The budget approved by the majority of the New Hampshire Senate proposes to increase total spending by $1.2 billion! That’s on top of a similar spending increase from the prior budget to the current budget of $1 billion. It's noteworthy these precipitous spending increases coincide with one party political rule in Concord.

Efforts were made to trim this spending on the Senate Floor by Republicans.  We proposed four separate amendments to make across the board cuts totaling 8.4%. These amendments, which I supported, would’ve eliminated the need to increase business taxes, hospitality taxes, and tobacco taxes. The fourth amendment would’ve cut state spending so that New Hampshire’s historic commitment to assist towns with Revenue Sharing is maintained.  Revenue Sharing means $50 million to cities and towns which helps lower property taxes. Not surprisingly, all four of these amendments failed ---  largely on partisan votes ---  which means property taxes, business, hospitality, and tobacco taxes will all go up!

The proposed increase in business taxes is particularly disturbing. Not one Senator could defend it as either good or fair tax policy. Rather, those that voted to increase business taxes were of a mind that taxes had to be raised to enable new spending; even though those who voted for higher business taxes would likely acknowledge this tax hike will cost New Hampshire jobs.

These were not the only discouraging votes for those who want to see New Hampshire jumpstart its economy, keep the cost of government low, and ensure government accountability and educational opportunity for New Hampshire students.

Two amendments which I supported were presented to ensure that local voters could continue to adopt property tax caps in their cities and towns.  A number of communities have, by a popular vote of their citizens, successfully implemented property tax caps. They are now threatened by lawsuits in court. These amendments to protect the local option to pursue a tax cap were defeated on straight partisan votes. Now property taxpayers are confronted by the grim reality that the courts in New Hampshire may be determining property taxes instead of local voters.

The Senate Finance Committee recommended capping the number of students that could enroll in charter schools. Charter schools, which receive public funding and which are part of our public school system, have proven to be very successful. They are allowed by their charter to be more creative and innovative than traditional public schools.

Charter schools also undertake a huge effort to raise private dollars to bolster public funds. I recently attended a fundraiser for the Seacoast Charter School, one of the first charter schools in our state. The enthusiasm and the dedication of students, parents, staff, and the community to raise funds for this school is exceptional.  It should be noted that the cost to taxpayers for charter schools is often substantially less than the cost of traditional public schools, while the quality and educational opportunities provided by charter schools is excellent.

A budget amendment would have eliminated this cap. It failed largely on partisan lines, though I supported the amendment. Should the cap stay in the budget, it is likely that at least some of the fledgling charter schools will not survive. If charter schools fail, taxpayers will find that decision both penny foolish and pound foolish, as educational innovation and lower costs to educate students will disappear.  Far worse, those students who thrive in charter schools but struggle in traditional public schools will have the door of opportunity literally slammed in their face.  It’s an unconscionable price for nearly 1000 New Hampshire students without a voice in this political wrangling.

On another budget issue, the Senate Finance Committee recommended removing $110 million from a fund paid into by physicians to keep medical malpractice rates in line.  Doctors have forcefully stated that any money paid into this fund is not something the State can raid, because it was paid for by physicians, not the state. An amendment which I supported would have made sure this fund was not simply expropriated by the State.  Naturally it failed on partisan lines. An almost certain lawsuit will follow. The State can’t count on access to this money anytime soon which means a $110 million budget hole.

Slot machine gambling easily passed the Senate. I voted against this proposal.  I was struck by how little debate there was upon the potential change that gambling would have on the fabric of our state.  Lastly this budget was chocker-block full of fee increases including hikes on drivers licenses, boating licenses, tolls, vanity plates, environmental permits, saltwater fishing licenses, gun permits, and motor vehicle, tractor, and motorcycle registrations. Companion legislation even raised the tax on home heating oil.

In total, taxpayers got smoked at a time that people are struggling to pay their mortgages and worried about finding or keeping a job. As if that were not enough, the economy is being unquestionably impacted in New Hampshire.  In November, only five states had a better unemployment rate than New Hampshire’s.  Six months later ten states have a better unemployment rate than ours.  47,000 people in New Hampshire are out of work, 20,000 more than a year ago. Economist Dennis Delay recently predicted that 13,000 more of our friends and neighbors will lose their jobs before the economy turns around.

The Labor Department just released the national employment numbers. 345,000 more Americans were out of work in May. The unemployment rate has climbed to 9.4% the highest in more than 25 years as 14.5 million people are unemployed.  Since mid-February when the American Recovery and Re-Investment Act (the Stimulus) was signed, 1.5 million Americans have lost jobs. The rate of job loss may have slowed from a flood to a mere torrent but that’s grim solace indeed to people who have lost their jobs or fret every waking moment about losing their job.

Economists are predicting that national unemployment will continue to mount to over 10% before we hit bottom and slowly start to climb out of this recession a year from now.

That's why what we do with this budget matters so much! And why it is mind boggling that the majority party in the Legislature is even willing to contemplate raising taxes on businesses struggling to keep their doors open or on the hospitality industry, one of the largest in New Hampshire.  A number of business leaders have warned me that these tax hikes will cost jobs, will make New Hampshire less attractive and will further undermine our already eroding competitive position relative to other states.

It is my hope that our colleagues on the other side of the aisle will reconsider their proposal to increase spending by nearly $1.2 billion and pay for it with large tax hikes on businesses, property owners, and just about everyone else. It is never easy to cut government spending. But it has to be done.

The editors of the Portsmouth Herald said it best recently: “we would urge our legislators to do what those of us in the real world have been doing for quite some time now and reduce spending rather than looking for new ways to support programs and services we can no longer afford.”

The Senate Finance Committee last week reported its version of the state operating budget.  It increases overall spending by about a billion dollars or approximately 10% after similar increases in the last budget enacted two years ago.  This budget depends upon $185 million of direct revenue from slot machines as well as hefty tax hikes on businesses in the middle of a deep recession.

Slot machines at race tracks in Salem, Seabrook, and Belmont is a proposal that has been around a long time. The Finance Committee approved up to 13,000 slot machines and two north-country facilities that are estimated to produce $185 million in revenue.  Gambling is not a partisan issue and has determined support because of the added revenue, and determined opposition because of social implications and the change in the fabric of our state it could create. I continue to have concerns about gambling.

While bettors may be laying long odds that gambling will ultimately pass, it is almost certain that taxes are going up.  These looming and precipitous tax hikes are due to the majority party in control of both the House and Senate which has shown no willingness to cut spending as families and businesses are doing to survive the harsh economy.

Here are the major tax proposals being bandied about in Concord.

5% tax on Capital Gains: Passed by the House but rejected by the Senate Finance Committee. Among the worst of all proposals, taxing capital gains is directly harmful to business growth, investment, risk taking, and productivity. It taxes gains on everything from the sale of property, retirement assets, and small businesses – the backbone of our economy.  House budget writers assume $75 million in revenue, but they should look to what has happened in Washington when capital gains have been increased and decreased.

Presidents Kennedy and Clinton supported capital gains reductions and revenue increased.  When President Reagan was forced by Congress in 1986 to accept a 40% increase in the capital gains rate in order to get his other tax proposals enacted, revenue declined. In fact four years after the 1986 capital gains rate increase from 20% to 28%, revenue to the Treasury was lower. Imagine that---higher taxes actually decreased revenue. That must be the definition of success!

In 2003 when Congress voted to lower the capital gains rate from 20% to 15% (one of the most important votes I cast in Congress), revenue more than doubled. Further, in 2003 when that overall tax reduction legislation passed, the unemployment rate was 6.3%. Four years later, the unemployment rate was 4.4%. Both revenue and jobs had increased. Yet today, in both Concord and Washington, some want to increase this tax despite the overwhelming evidence that it will cost both jobs and revenue.

I was recently speaking with a business owner who succinctly told me that if New Hampshire passed a capital gains tax, the tax climate for his business would be worse in New Hampshire than in California where his company also has interests. It is time to dismiss this tax summarily, which to its credit, the Senate Finance Committee did. However the nails have not been pounded into the coffin, as Capital Gains could be resurrected in a committee of conference.

Elimination of the BET Credit against the BPT: The Business Enterprise Tax is a .75% payroll tax employers pay on employees salary. Since implementation of the tax nearly 15 years ago, employers could take their BET obligations as a credit against the Business Profits Tax. New Hampshire’s General Fund depends on these two taxes for fully 25% of its tax revenue.  From the smallest to the largest New Hampshire employers, businesses pay more than their fair share of taxes, without question.

Because of the aversion to cut spending, the revenue from the Capital Gains proposal had to be replaced. Thus, the Senate Finance Committee has recommended elimination of this tax credit which would cost businesses $80 million. This $80 million tax hike is a double whammy for businesses already facing many millions in hikes for the employer costs of unemployment insurance.

Jim Roche, President of the Business and Industry Association said repeal of this tax credit “exacerbates an increasingly uncompetitive business climate” and said the “economic implications of this trend are alarming.”  Roche cites New Hampshire’s recent ranking of 25th in the Small Business and Entrepreneurship’s 2009 Business Tax Index. This is one race to the bottom New Hampshire simply cannot afford to win.

Unfortunately, however, the majority of the committee supported this tax hike on businesses which will make it far more difficult to get our economy on track. Nearly 50,000 of our friends and neighbors are out of work. If this tax hike survives, they are far more likely to stay out of work.

Increasing the Rooms and Meals Tax: Proposed by Governor Lynch, passed by the House. Now it has the support of the majority of the Senate Finance Committee. This proposal would raise the tax on the hospitality industry by nearly 10%. At a time that people, including visitors to New Hampshire, are cutting back discretionary spending, hiking this tax will only make a tough business climate more difficult for restaurants and hotels. No area of our state will be more impacted than the Mount Washington Valley.  Business owners in that region have told me unequivocally that New Hampshire will be less competitive for tourist spending for vacations, weddings, tours, and conventions. This is a $40 million mistake.

Increasing the Tobacco Tax: Proposed 45 cent hike by the Senate Finance Committee. This tax hike is estimated to raise $75 million but would be the fourth tobacco tax hike in five years. Smokers have to be saying enough already. Furthermore, our budget already counts on $160 million in revenue from this tax – a large portion coming from cross border sales of tobacco. A hike of this magnitude could mean the expected revenue gains go up in smoke as our competitive position is undermined.

All told these three tax hikes will cost $195 million and these are only the big three.  There are numerous other tax and fee hikes on vehicle and boat registrations, tolls, salt water fishing licenses, septic and subdivision permits, and vanity license plates. A fund paid into by doctors to keep a lid on medical malpractice rates will be raided to the tune of $110 million virtually guaranteeing a lawsuit. State of New Hampshire retirees will see higher costs for their health care. Perhaps most insidiously, property taxpayers get badly dinged by increased retirement costs and a gaping $50 million hole in revenue sharing.

The New Hampshire unemployment rate stands at 6.4% and residents across the state are struggling to pay their mortgages while they worry about keeping their jobs. Now apparently the Governor is considering forcing the Real Estate Transfer tax to apply to mortgage refinancing – at a time people are refinancing to try to keep their homes. OUCH!

People naturally are asking why state government spending grew so much in the previous budget.  Why is it projected to grow so much more in this budget?  They further ask why can’t state government do what they are doing – cutting spending. That is the answer to this budget predicament.

On Wednesday, the Senate will be in session and will vote on all these tax proposals passed by the Senate Finance Committee. Let's hope they fail.