Committee urged to consider sales tax

CONCORD – A legislative committee studying an income tax bill was told yesterday it should consider a sales tax instead.

A subcommittee of the House Ways and Means Committee asked Ross Gittell, a University of New Hampshire economics professor, for his opinion on a pending income tax proposal in House Bill 642.

Gittell said he hadn't done a detailed analysis, but laid out some general principles of sound tax policy. He then said the state should consider instituting a sales tax. If it were set at half the rate of neighboring states, it would raise substantial money, continue to draw out-of-state shoppers and allow the state to cut other taxes, he argued.

Committee chair Rep. Susan Almy, D-Lebanon, introduced Gittell to the committee after saying that she prefers an income tax.

Almy is organizing an Oct. 20 forum to review the state's tax code, inviting a variety of speakers to the session, which may have to run two days.

Two national conservative groups, the Tax Foundation and the American Legislative Exchange Council, are among those Almy has invited. She said guests will come from both political parties, but not from the extreme wing of either.

Almy said that in hearings on HB 642 and planning the forum next month, "we are not following my personal agenda. I am an income tax supporter, but I could change that if I saw it would have enough negative impact that I thought we shouldn't do it." New Hampshire and Alaska are the only two states with neither a sales or an income tax. Gov. John Lynch has pledged to veto either of the broadbase tax measures if it gets to his desk.

Kevin Smith of Cornerstone Policy Research sat through the tax hearing and said afterward he thinks the committee is misguided.

"We really wish the Legislature would be studying ways to decrease state spending. They seem to be turning a deliberate blind eye to any type of analysis of where government services can either be consolidated or reformed," he said. "I don't think people want another tax levied on them." Speculation about the October forum focused far more attention to yesterday's session than Almy anticipated. She said it was meant to be an informal briefing by Gittell on HB 642.

The bill would put a flat 5 percent income tax in place, repeal the business enterprise tax, put the statewide property tax rate at $5.50 per $1,000 of value and give each homeowner a $200,000 homestead exemption. Renters would also qualify for exemptions.

Gittell said the bill would hit businesses and wealthy individuals hardest. It would also have a disproportionate effect on those who live along the Massachusetts border, where real estate values are higher.

He said any tax policy should tax what a state wants to discourage, leave alone what it wants to encourage, be kept simple, stable and at rates below bordering states. When times are flush, money should be set aside for lean times that inevitably follow, he said.

He offered a sales tax as a solution along those lines, and said it would gradually lower the state's ranking as nation's second highest concentration of retail jobs. He said the jobs pay low and offer little advancement opportunity.

Money raised by the tax could be put toward more training programs for better paying, more rewarding jobs, he said.

Gittell said he sees value in the forum Almy is planning.

"We should encourage discussions like this across the state. We have to be open, we have to be transparent, willing and open to listening to each other," he said.