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Kevin Landrigan: Is Trump tax plan a plus for NH?

New Hampshire Union Leader

October 04. 2017 10:08PM
Tax forms at Manchester Public Library in 2014. (DAVID LANE/FILE)

New Hampshire’s lack of an income tax and its overall low tax burden mean Granite State middle class families have far less to fear from the Trump tax plan than do residents living in high income tax states such as New York and California.

That’s the consensus of economic, tax and political experts the New Hampshire Union Leader surveyed regarding the nine-page White House plan.

What’s at play in the first comprehensive tax overhaul in 30 years is Trump’s bid to eliminate the federal income tax deduction taxpayers receive for paying state income and local property taxes.

This has been a cherished provision in the federal tax code since 1913 and referenced generally in the Federalist Papers as a way to prevent double taxation.

In 1986, Donald Regan, Ronald Reagan’s treasury secretary, said government officials must “slay that dragon” and led the last failed attempt to get rid of the deduction.

And in recent days, congressional Republican leaders have said they could be willing to keep at least part of this deduction so as not to lose the votes of all GOP members from California, New York and other high-tax states.

“We are focused on delivering tax relief for all Americans across the country, regardless of what state they live in,” Rep. Kevin Brady, R-Texas, one of the architects of the plan, told reporters after a private meeting with key lawmakers.

“That won’t be determined until the final details of the tax reform plan are put in place,” he said. “In the meantime, we are working with them, listening very closely to all our lawmakers, Republicans and Democrats alike, who are in high-tax states.”

The tax break is one of the largest in the code and favors high-income, high-tax states. California and New York alone account for a third of the total deduction.

“I do think because New Hampshire isn’t ‘losing’ the deduction for state income taxes, the state will gain more from some of the changes — such as lower rates and a higher standard deduction — than many other states,” said Brian Gottlob, a principal in PolEcon Research in Dover and a former executive with the Business and Industry Association of New Hampshire.

Former Democratic nominee for governor and income tax advocate Arnie Arnesen of Concord is more cynical about Trump’s plan.

“Everyone knows that’s a shot at the blue states; it’s payback, that’s what this is all about,” Arnesen said.

The only deductions Trump’s plan would keep are the ones most used by the middle class — for interest paid on home mortgages and for donations to charity. Trump’s plan would nearly double the standard deduction, from $12,700 for a married couple to $24,000.

This could dramatically lower the number of middle-class families that itemize on their taxes and make it possible for more to file their own income taxes on a one-page, 1040 EZ form without needing to pay a CPA to do it.

“Remember the income tax postcard Steve Forbes talked about as a candidate? That’s what we could be going toward,” said former State Rep. Steve Stepanek, a Trump campaign co-chairman who served as the chairman of the Ways and Means Committee in the New Hampshire House of Representatives.

“The ones who would get hurt the most are the upper-income levels; they are paying higher income and they are paying higher property taxes,” Stepanek said.

Some will take the swap

New York Republican Congressman Chris Collins comes from a state where taxpayers claim $21,000 in deductions from state and local taxes, by far the most in any state in the country. He said he’d swap that for the near-doubling of the standard deduction.

“I bet you 98 percent of the people in my district are gonna take the standard deduction,” Collins said. “So they’re not gonna lose anything.”

But Arnesen said this linear math fails to take into account the crushing weight of local property taxes particularly for those owning a home in income-poor regions of the state such as Coos and Sullivan Counties.

“In those counties you could be paying 15, 20, 30 percent of your income on property taxes and that deduction is the only offset you have,” Arnesen said.

“The doubling of the standard deduction doesn’t matter. You are still screwed because the property tax bears no relationship to your livelihood. You’re not working; you still have to pay it. You’re sick; you still have to pay it and this state offers no relief. The only relief has been that deduction.”

According to the Internal Revenue Service, of the 693,000 individual income tax returns filed for 2015 by New Hampshire residents, about 200,000 returns — or nearly 30 percent — claim a deduction for local property taxes.

Among families who earn no more than $25,000 in taxable income, the average property tax bill was $5,520.

That means they all wrote at least 20 percent of their adjusted gross income in a check to the local tax collector.

“Those people are going to be hurt in ways they had never imagined,” Arnesen said. “In Coos County you are talking Mississippi income while paying New York property taxes and now tell them they can’t deduct it.”

Other New England states

Stepanek maintained many of those lower-income individuals will pay little or no tax under the Trump tax plan, which has a 12 percent tax rate and more generous standard deductions.

“I’m telling you that doesn’t affect us the way it will other states like New York and New Jersey,” Stepanek said.

New Hampshire has the third-highest property taxes in the nation.

But even with that, the benefit from the state and local tax deduction is much less here than for residents of every other New England state.

According to the Tax Foundation, thanks to this tax break every other New England state is in the top 12 for having citizens who get the greatest part of their adjusted gross income deducted.

Connecticut is 3rd, Rhode Island 7th and Massachusetts 8th. New Hampshire is 27th and at 4.3 percent, below the national median of 4.5 percent.

Gottlob said New Hampshire would be much lower than that, but nearly 100,000 — or one in about every seven tax returns — is paid by a family that claims the deduction for state income taxes.

This is because those families earn their wages in Massachusetts, Maine, Vermont or from some other telecommuting state with an income tax. Gottlob said these families would not see the same benefit under the Trump plan as those working in New Hampshire.

“Along with the loss of the property tax deduction they don’t get as much benefit and are pretty much in the same boat as those living in higher-tax states,” Gottlob said.

Talking points

The talking points on the Trump tax plan dominate the headlines at this early stage of the debate.

“The proposal floated by President Trump and Congressional Republicans is not tax reform, it’s a huge tax cut for the Trump family and other wealthy people and big corporations, precisely the groups that need it the least. This windfall for the wealthy will be paid for by cuts to the very programs that give a boost to seniors, children, and people with disabilities,” said Zandra Rice Hawkins, executive director with Granite State Progress, a liberal interest group.

State Rep. Al Baldasaro, R-Londonderry, said the President should not try to win the argument with his political enemies. “Many Democrats will not support the tax plan because they believe in redistribution and like spending other people’s money. This tax plan will help the economy, it gives people back some of their money to spend and helps the growth of business investments and more jobs,” Baldasaro said.


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