The Re-Fi Tax: A Lose-Lose Idea

Op-Ed by Rep. Tim Butterworth (4.00 / 2)

in the Concord Monitor:

It's titled: "State Tax System Divides Investors into Two Camps"

When the interest and dividends tax was passed in 1923, our Yankee grandparents kept most investments in safer investments like savings accounts. Today financial advisers recommend savings accounts, CDs, bonds and shares that pay dividends to small investors or the elderly who can't wait for several years of bad stock market performance to spend their investment. These are the people New Hampshire taxes.

Capital gains investment income comes from the stock market. Unlike in 1923, much more of our wealth is invested like this now. Advisers recommend growth stocks for wealthier and younger investors, who can afford a few bad years. Over the long haul, the stock market makes more money, but it's riskier and only a wise investment for people who can afford it. These are the investors New Hampshire protects.

The capital gains proposal says that the state would add this income to interest and dividends. Then it increases the current $2,400 individual exemption on investment income to $5,000, or $10,000 for a couple. The exemption increases for the elderly. A couple over 65 would have to earn $12,400 just from their investments - not retirement or Social Security - before they paid any tax at all, and then 5 percent on investment income above that. For most people, this would mean reduced taxes. Median family income in New Hampshire is about $65,000, and 96 percent of the new tax would be paid by people with incomes over $75,000.

Butterworth goes on to explain the difference between supply side economics, where the untaxed wealthy allow their wealth to "trickle down" and demand side economics, where the middle and moderate income folks have the means to buy goods and services. Supply side has been an epic fail, made worse by using consumer debt instead of real wealth to stoke the demand side.

Butterworth ends the piece by reminding us that while the state's tax structure is attractive to wealthy retirees, it is not attractive to young workers because of costs and there are reports that it's very bad for lower and middle income retirees. These are very real concerns policy makers should bear in mind as they go forward.
 

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by: Jennifer Daler @ Sat Jun 13, 2009 at 08:11:08 AM CDT

Supply Side vs. Demand Side (0.00 / 0)

It's almost like the point is to have them in balance for maximum economic output.

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by: Douglas E. Lindner @ Sun Jun 14, 2009 at 00:57:41 AM CDT

[ Parent ]

morgage tax (4.00 / 4)

Just think. You not only get to pay a tax on borrowed money, you get to pay interest on the tax during the life of the loan.

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by: pmceachern @ Sun Jun 14, 2009 at 04:44:00 AM CDT

[ Parent ]

gotta love it (4.00 / 4)

thinking about this:

It's a tax.

On a loan.

Far be it from us to tax income. That would be money you have. This is NH, so for astounding and mystical reasons, we cannot tax that.

But money you don't have, money you have to borrow, and will have to pay back: money that is not even yours: That we can tax!

My head hurts.


=Health care for all now!=

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by: beverlywoods @ Sat Jun 13, 2009 at 08:12:36 AM CDT

That has always been true of the property tax (4.00 / 2)

You put down $50,000 on a $250,000 house and pay taxes on the full $250,000.

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by: elwood @ Sat Jun 13, 2009 at 09:23:43 AM CDT

[ Parent ]

well of course the prop tax can be worse than that: (0.00 / 0)

You buy a $45,000 house at auction. You put $10,000 and months of your own labor into fixing it up. Then along comes the assessor and says now you have a $200,000+ house. Now you have to get a second job to pay the taxes. (This happened to a friend of mine. She had to leave her small children in daycare for years, courtesy of the NH tax system.)

In any case, the proposed tax compounds the issue already present in the property tax by taxing these same people on that same house they are trying to live in (if they ever get home from all those jobs they now have to work) yet AGAIN.


=Health care for all now!=

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by: beverlywoods @ Sat Jun 13, 2009 at 09:48:59 AM CDT

[ Parent ]

Dean, when you state that ... (0.00 / 0)

When the NHGOP and I are in agreement, something has got to be wrong.

.. you may be onto something. In fact, you may be channeling the words of the late Captain Binghamton and his famous cri-de-coeur:

                               

"I could just scream!"

 "We should pay attention to that man behind the curtain."

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by: Ed Tracey @ Sat Jun 13, 2009 at 15:07:43 PM CDT

This is the usual NH "tax the working class or middle class" idea (4.00 / 3)

but I have a dream...

Someday, the NHDP will be able to elect a Democratic majority to the NH House and Senate, and we will have a Democrat in the corner office. When that day comes, a proposal to tax people trying to dig themselves out from under a financial burden so we don't have to tax the capital gains and estates of the very wealthy will be laughed at.

It's a dream, but I think that day will come in my lifetime.

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by: Michael Marsh @ Sat Jun 13, 2009 at 15:47:44 PM CDT

I vote for capital gains tax... (0.00 / 0)

And expanded gaming under a better bill. From everything I am hearing, no one idea will generate enough revenue.  

"When you get to the end of your rope, tie a knot and hang on."  Franklin D. Roosevelt    

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by: Kathy Sullivan 2 @ Sat Jun 13, 2009 at 16:37:14 PM CDT

Here is the progressive way to close the budget gap (0.00 / 0)

The Governor says we have a $150 million gap. I don't know how he did that calculation, but assume it's right.  

The cap gains tax passed by the House will raise $100 million in the next 2 years. That's about a third of what it would do in "good times", which we will see again some day, theoretically.

The estate tax will raise between $10 million and $30 million (our tax authorities aren't sure which).

The Governor is proposing the elimination of certain loopholes that wealthy people take to avoid paying interest and dividends taxes (The tax is on individuals, so you turn yourself into an LLC company and don't have to pay the tax. Cool, huh?)

If the $150 million figure is right, these 3 things close the gap.

There is no mechanism for fixing the gambling bill. Even if there were, the tax revenues it is claiming to bring in this budget cycle are by-and-large a fantasy.

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by: Michael Marsh @ Sun Jun 14, 2009 at 06:10:55 AM CDT

[ Parent ]

Oversimplification (0.00 / 0)

That is a wicked oversimplification of the llc issue. Professionals form llc's to do business - people like doctors, lawyers, dentists, accountants, realtors, small business people. Calling them all "wealthy people" is not accurate.

"When you get to the end of your rope, tie a knot and hang on."  Franklin D. Roosevelt    

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by: Kathy Sullivan 2 @ Sun Jun 14, 2009 at 19:50:41 PM CDT

[ Parent ]

But it still is a loophole. . . . n/t (0.00 / 0)

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by: Dartmouth Dem @ Sun Jun 14, 2009 at 19:53:55 PM CDT

[ Parent ]

But.... (0.00 / 0)

Calling it something "wealthy people" do is glib and misleading.

"When you get to the end of your rope, tie a knot and hang on."  Franklin D. Roosevelt    

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by: Kathy Sullivan 2 @ Sun Jun 14, 2009 at 20:10:18 PM CDT

[ Parent ]

Agreed n/t (0.00 / 0)

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by: Dartmouth Dem @ Sun Jun 14, 2009 at 20:13:01 PM CDT

[ Parent ]

Kathy (0.00 / 0)

As far as I can tell, the details of the LLC tax are not yet available. I heard from one insider it had to do with I&D income. I just heard that it is a tax on the distribution of income from an LLC that already has paid corporate tax. If the latter, this is unfair and not closing a loophole,  And you are right.

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by: Michael Marsh @ Mon Jun 15, 2009 at 08:26:06 AM CDT

[ Parent ]

I also wonder what happens (4.00 / 3)

to the revenue projections for a refinance tax, now that rates are rising. If the rate is 5.6% instead of 4.75%, the number of refinances drops a lot...

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by: elwood @ Sat Jun 13, 2009 at 18:56:05 PM CDT

Very good point, Elwood n/t (0.00 / 0)

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by: Dartmouth Dem @ Sun Jun 14, 2009 at 19:21:04 PM CDT

[ Parent ]

Not only the Senate (4.00 / 1)

The Governor let it be known that the capital gains tax wouldn't get by the corner office.

The House plan was more than fair and did not put any hardship on anyone.

The Estate tax would have required an estate of more than 1 million each person before it kicked in and it wouldn't apply to farms or businesses. What is wrong with that?

The Capital Gains would double the protection of the interest earnings from savings and dividends. Capital Gains on stocks wouldn't have kicked in unless you had $120,000 portfolio that was performing and then 5%. Also if you paid business tax you would be exempt from Capital Gains tax in that year. What is wrong with that?

And the Gas Tax hadn't been raised in 18 years (did the price of asphalt go down in the last 18 years?), was 5 cents per year with trucks protected from a sudden rise by stretching the rise out over two years for each rise. It would save enormous amounts of future debt by keeping the paving rotation on a maintainance basis instead of forcing rebuilds because of neglect. What is wrong with that?

My guess is that some people who aren't contributing to the general good have been contributing to the campaigns of the Senators and the Governor. OK so you knew that, but this year we are going to get smacked in the face with it.

And these two other alternatives, wtf?

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by: robert @ Sat Jun 13, 2009 at 19:13:50 PM CDT

I thought I had read this somewhere (0.00 / 0)

The Governor let it be known that the capital gains tax wouldn't get by the corner office.

but could not find any reference to it when searching this morning.

Anyone have a media quote and link?

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by: Dean Barker @ Sat Jun 13, 2009 at 20:29:52 PM CDT

[ Parent ]

That's not my recollection. (0.00 / 0)

The governor expressed skepticism about a capital gains tax, but I don't recall a veto pledge.

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by: elwood @ Sun Jun 14, 2009 at 05:18:25 AM CDT

[ Parent ]

Just a side vent... (4.00 / 2)

Why do we ever set tax rates in fixed dollar amounts?  Even at low levels of inflation, they are going to lose value, and then there has to be another legislative fight every few years.

Ug. This is just my personal pet peeve.  Either use a flat % or put a clause in the bill to increase automatically with inflation.  Stop making us revisit these %$^$% things every few years.

End rant.

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by: Karen @ Sun Jun 14, 2009 at 05:53:36 AM CDT

[ Parent ]

Oh, that was directed at the gas tax, if that wasn't obvious. n/t (0.00 / 0)

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by: Karen @ Sun Jun 14, 2009 at 05:54:33 AM CDT

[ Parent ]

We do for some things (4.00 / 1)

As far as I'm aware, the federal payroll tax ceiling goes up annually.

I do think percentage taxes need to be carefully applied to commodities like gasoline so as not to increase price swings, as apparently has been proposed, to smooth prices some. Or a combination of cents-per-gallon and percentage. Or heck, just index the thing to the CPI, which is probably the only thing that makes sense for that.

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by: Mormo @ Sun Jun 14, 2009 at 21:57:44 PM CDT

[ Parent ]

A couple of comments (4.00 / 1)

The estate tax proposed an exemption of $2 million per person, $4 million per couple. Charitiable gifts were exempted, as were transfers from an estate to a surviving spouse. Because of the way in interacts with the federal estate tax, a couple with a $10 million dollar estate would see an effective tax rate of less than 3%.

Estate taxes have a long tradition in NH, going back 100 years. Our previous one was killed in Washington by changes made by the Republican Congress during W's first term.

More than 90% of the revenue from the cap gains tax that was passed by the House would come from people making more than $200K per year.  Because of the way it increased exemptions for interest and dividend income, the tax would put more money back in the hands of people making less than $100,000- they would pay less total tax.

Business capital gains are taxed in this state already as business profits. The cap gains tax is for individuals only.

This got killed in the Senate because of the Gov's comments, because THe GOPers vote against any tax on wealth in principle,  and because gambling supporters wanted to get rid of any competition to the casino bill. They don't want alternatives.

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by: Michael Marsh @ Sun Jun 14, 2009 at 05:54:09 AM CDT

[ Parent ]

The Gambling supporters also killed (0.00 / 0)

the House's proposed tax on gambling winnings over $600.00.  


"Plus Ça Change, Plus C'est La Même Chose"

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by: NHFlatlander @ Sun Jun 14, 2009 at 17:07:54 PM CDT

[ Parent ]

There's an obvious fair solution: (4.00 / 2)

The tax that dare not speak its name.

It is absolutely inevitable.

The more we delay, the more unnecessary pain is visited on the people of NH.

No'm Sayn?

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by: BurtCohen @ Sun Jun 14, 2009 at 16:10:11 PM CDT

I Know What You're Saying... (0.00 / 0)

Burt -- you're correct, in my book.  Unfortunately we do seem to be up against a wall this year, more than any other I can remember. Here's my bleak view:

While gambing isn't "new" money and the real costs exceed the benefits, I think the House will eventualy vote for some expansion this year.  We can't cut State Government to the level needed to balance without increase income.

The lobbyists and the interests they represent, and their potential contributions -- who DO have an influence over elected officials otherwise they'd be out of a job and seldom make contributions -- have teamed up for expanded gambling.  Lots of money to be made by gambling interests.  We'll see some "compromise," re-named, re-packaged.    

We're not going to have tax reform this year or the next cycle, though having a fair tax assessment based on ability to pay seems to have caught on throughout the country.  New Hampshire's draw to some of the wealthy who want to avoid income taxes elsewhere will continue.

We'll probably see more downshifting of costs previously picked up by State Government pushed onto the cities and towns, and onto all of us as property tax increases.  That's a burden that hurts the lower income disproportionately.

And cuts in important, some even life-sustaining programs will be deep, too deep.  

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by: Rep. Jim Splaine @ Sun Jun 14, 2009 at 16:36:26 PM CDT

[ Parent ]

Hope (0.00 / 0)

We at have had a rainy day fund, and have been somewhat insulated from the worst of the downturn. NH certainly has a history of fiscal discipline. We need to re-establish the rainy day fund, and find fairer state funding mechanisms for the long term, but if we're able to get by with, as you say, some sort of gambling compromise, and without the disastrous cuts in services forced in other states? Far better than the financial meltdowns facing NY and CA.

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by: Mormo @ Sun Jun 14, 2009 at 22:02:22 PM CDT

[ Parent ]

As far as I know, (0.00 / 0)

NH still has a rainy day fund, but won't/can't use it because it would negatively affect the state's bond rating.

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by: Jennifer Daler @ Mon Jun 15, 2009 at 05:48:22 AM CDT

[ Parent ]

Sigh (0.00 / 0)

Couldn't you at least pretend to be less knowledgeable? Drop in a few falsehoods, unproven claims, ridiculous assertions? Leave the rest of us hopelessly optomistic loonies room for fantasy? Left to our own devices, we could smear the good feelings created by the gay marriage ammendment over the losses in seat belts, transgender, death penalty, medical marijuana - and I would even fuzz the edges of the income tax. As I go around singing Spencer Davis's "I'm Blue" I try to turn it into a happy thing.

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by: xteeth @ Mon Jun 15, 2009 at 07:58:43 AM CDT

[ Parent ]