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October 16. 2012 9:43PM

Charles Arlinghaus: A welcome vote on the income tax


 

Surprising all political observers, November's up-or-down vote on an income tax is neck-and-neck. This is a rare opportunity for voters to express an opinion on one issue alone without having to agree with the person advocating the issue on everything else. The results of the income tax vote overall and in specific districts will influence many politicians for years to come.

Some states have referendum and initiative elections in which a specific issue or law is voted on not by the legislature, but the people at large. New Hampshire is not one of those states. Laws must be passed by the Legislature and reviewed by the governor. The one exception to that rule is amending the constitution. An amendment is passed by the Legislature but must then be accepted by two-thirds of the voters before it takes effect.

Normally, amendments involve more complex or process-oriented issues. This year we have an exception. One simple constitutional amendment would merely ban an income tax. An income tax would still be possible in the future, but only by the higher threshold of amending the constitution, not merely passing a law.

In general, both political parties consider support of an income tax political suicide. Even the Democratic Party establishment insists that its gubernatorial candidates pledge to oppose an income tax. In contrast, tax supporters have often claimed that the public is not nearly as hostile to an income tax as the establishment is.

November's vote will put that theory to the test. The only poll taken on the issue shows a roughly even split: 42 in favor, 40 against. Realistically, what this means is that a 67 percent majority to write it into the constitution is out of reach. In that sense, the vote turns into a true referendum on the issue of an income tax — a simple yes or no vote on your preference. A low vote will encourage income-tax advocates to redouble their efforts. A high vote will drive the issue firmly to the back burner.

New Hampshire's economic competitiveness is tied very closely to an income tax. Our regular business taxes are among the highest in the country, typical of our region. The Tax Foundation's small business competitiveness rankings find New Hampshire ranking poorly on the corporate tax component, but nonetheless ranking 7th overall simply because we don't have an income tax.

The simplest reason to support the amendment is because you are opposed to the state implementing an income tax. And the simplest reason to be opposed to an income tax is experience.

Supporters usually claim they want to lower our taxes by implementing a new tax. But history has shown this just doesn't work. The last two states to implement an income tax have been New Jersey and Connecticut. New Jersey had passed a sales tax to help with property taxes, but it failed to offer any help so they passed an income tax too and dedicated the money to a “Property Tax Relief Fund.” It has worked so well that New Jersey's property taxes are the highest in the country.

So the people of Connecticut had a better idea, they thought. Led by Gov. Lowell Weicker, they passed an income tax in 1991 to give the state government more money. A vibrant state government would perhaps limit cost-shifting and improve the overall tax burden. We hear that argument here a lot. It didn't work. Over the next 15 years, the per capita tax burden went from $2,900 to $7,600 (New Hampshire's went from $1,900 to $3,700 in the same period).

Weicker himself was flabbergasted by what happened. Despite a huge fiscal boost from an income tax and a massive new revenue stream from casinos, the state faced a huge fiscal crisis in 2003 (and every few years thereafter). Quite correctly he blamed everyone: “They just spent the money. It's as simple as that — the income tax, the gambling money. I just don't know how you do it. I just don't. I think it's just outrageous. I really do.”

Give them the money and they will spend it. That's what happens, and it's why you can't lower taxes by raising taxes. Politicians in New Hampshire are no more immune to temptation than politicians anywhere else. The result here would be no different.

Fortunately, we can avoid temptation and send politicians a clear signal that is not open to misinterpretation. Every politician will look at the result to guide his or her behavior. You should vote the way you want them to vote.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.


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