Best Of StateImpact: Is N.H. Really As Anti-Tax As It’s Cracked Up To Be?

March 5, 2012 | 2:27 PM

By Amanda Loder

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Since StateImpact launched late last summer, some of our most popular posts have revolved around taxes.  Given that New Hampshire has neither a sales nor an income tax — and notoriously high property taxes — we don’t find this trend surprising.  As the site has gained momentum, and clicks, we’ve occasionally found it helpful to bring some of our earlier, relevant posts to your attention.  This particular piece, comparing New Hampshire’s tax culture to Iowa and Washington State, was popular early on, and, in case you missed it, we thought we’d offer you another look.I’ve written a few posts recently about Republican presidential candidate Herman Cain’s 9-9-9 plan.  (You can read the first post here.)  The second post, “Cain’s 9-9-9 Touches Third Rail of New Hampshire Tax Policy,” generated a number of comments from StateImpact readers, but this one, part of a larger comment from Anonymous, stood out:

“…As for the whole notion Granite Staters — unlike any other around the nation — don’t like paying taxes, have you met a lot of people who don’t live in NH who LIKE paying taxes? Come on, we are not some exotic breed. We need to stop swallowing our own marketing about “tax-free NH.” Paid your property taxes lately?”

Anonymous’ comment leads to an interesting question — how anti-tax is New Hampshire, anyway?

It’s important to make some points clear:  This post is not a judgment on New Hampshire’s attitudes toward taxes.  This post also is not an endorsement of any particular tax policy.  It’s only an attempt to determine whether it is, in fact, fair to characterize New Hampshire as an “anti-tax state.”

How The New Hampshire Tax Burden Stacks Up Nationally

For a long-time Granite Stater, New Hampshire might not seem particularly anti-tax.  Besides, New Hampshire has the second-highest property taxes in the country, after New Jersey.

But there’s a key difference between these two states.  New Jersey has the highest property taxes in the country…and a general income tax and a general sales tax.  By contrast, New Hampshire uses its high property taxes, in part, to make up for revenue lost by not having broad-based income or sales taxes.

The only other state not to have either a general sales or income tax is Alaska, which has the advantage of oil revenues.

So how do the other no-sales-tax states stack up to New Hampshire, in terms of tax burden?  A good place to look is the Tax Foundation, a research group based in Washington, D.C.

Using data up to FY 2009, the Tax Foundation did the following:

“For each state, we calcu­late the total amount paid by the residents in taxes, then divide those taxes by the state’s total income to compute a ‘tax burden.’ We make this calculation not only for the most recent year but also for earlier years because tax and income data are revised periodically by govern­ment agencies. The goal is to focus not on the tax collec­tors but on the taxpayers. That is, we answer the question: What percentage of their income are the residents of this state paying in state and local taxes?”

Here’s the map the foundation published last winter (click this link for a map you can zoom in on):

There are five states that don’t have a sales tax.  But that doesn’t necessarily alleviate individual tax burden, as the Tax Foundation map demonstrates.  Here’s an individual look at the burden faced by sales-tax-free states (as of 2009):

• Alaska: 6.3 percent. Ranks 50th
• Delaware: 9.6 percent.  Ranks 23rd
• Montana: 8.7 percent.  Ranks 35th
• New Hampshire: 8.0 percent.  Ranks 44th
• Oregon: 9.8 percent.  Ranks 17th

So the Granite State actually ranks in the bottom 10 states for tax burden.  Only Alaska, Nevada, South Dakota, Tennessee, Wyoming and Texas offer residents a lower overall tax rate.

How Granite Staters Feel About Taxes

Of course, the historic rate doesn’t exactly get at the idea of anti-tax sentiment.  It’s just a snapshot of the current tax environment.  So what’s the tax culture of New Hampshire?  Andy Smith, a political pollster who directs the University of New Hampshire’s Survey Center, offers some perspective:

“What we find for a sales tax is that 31 percent of residents say they would be more likely to vote for someone who was in favor of a sales tax,” Smith says, “but 57 percent are more likely to vote against somebody who favored a sales tax.  So the opposition is about 2-to-1 against a sales tax among people in the state.”

(The prospects are even worse for politicians in favor of an income tax, which you can see in Smith’s research here.)

Smith notes that New Hampshire’s famous Pledge — in which people running for state office promise not to support an income tax or a sales tax — plays a key part in the state’s political life.  And it’s illustrative of New Hampshire’s anti-tax culture:

“It’s something that certainly Republicans have historically taken the Pledge, and even Democrats will regularly take the Pledge,” Smith says, adding:

“[Democrat] John Lynch, the current governor, got into that position, I think, in large part, because he did take the Pledge before he ran for office in 2004 and during his record four terms in office, hasn’t made any moves to pass an income tax or a sales tax, even in times when the state budget was in crisis.”

But as Anonymous noted, who really likes to pay taxes, anyway?

At this point, I think it’s best to draw on personal experience.  As a New Hampshire newcomer who’s lived in several other states, I can say that so far, New Hampshire appears to be the most skittish about taxes.  For the purposes of comparison, I’ll delve into my experiences with two states I’ve spent significant amounts of time in:  My home state of Iowa, and Washington, where I lived for several years before coming to New Hampshire.

The Heartland’s Hearty Support For Taxes

Iowa has both a general income tax and a 6-percent statewide sales tax.  The sales tax money goes into the state’s general fund.  But if residents of counties, cities, or unincorporated areas want to generate a bit of sales tax revenue for their own purposes, they can petition for what’s called a Local Option Sales Tax.  If they get enough signatures, the community in question can hold the question up to a vote.  And if it passes, the community can tack another 1 percent onto the state sales tax.

As anyone who follows presidential politics will tell you, Iowa’s not known for its strong liberal bent.

But the Local Option Sales Tax?

It’s extraordinarily popular.  If you look at this map of the state, at least one community (or Local Option Jurisdiction) in all 99 counties has approved this tax.  And in 96 out of 99 counties, people in most, if not all, jurisdictions have approved the extra tax.

Would a majority of New Hampshire residents vote to raise their taxes in their communities?  Given residents’ general resistance to a broad-based sales tax — it’s probably safe to say “no.”

A “Blue” State’s Surprising Tax Politics

Then there’s Washington State.  It’s widely perceived as a Mecca for liberal politics.  And that’s true to some extent … if you live on the small sliver of land west of the Cascades, dominated by Seattle and its satellites.  But if you live somewhere in the large stretch of land spanning from the Idaho border to the foothills of that far western mountain range (like I did), it’s a different story.

Eastern Washington is home to the state’s second-largest city: Spokane, which is the Inland Northwest’s cultural and political hub. People on that side of the state tend toward libertarian conservatism.  They tend to vote Republican.  They vote to repeal sin taxes on things like candy bars.  And they — along with the state’s liberal contingent — have no qualms about repeatedly passing ballot measures that all but forbid legislators from raising state taxes.  (If you want all the gory details of Washington’s tax tussles, just Google “Tim Eyman,” the state’s referendum-filer-in-chief.) This despite the fact that, like New Hampshire, Washington has no general state income tax.

Coming from Iowa, which has both an income tax and a sales tax, I thought I’d come out ahead living in eastern Washington, which has a similar cost of living to the Midwest.

I was wrong.

While Washingtonians are fed up with their state tax rate, it seems local taxes are a horse of another color.  Like Iowa, Washington has a statewide sales tax.  And the rate is a bit higher than Iowa’s, at 6.5 percent.  Although the state is well known for its large social safety net, voters in individual communities are expected to step up quite a bit when it comes to basic services.

Want to fund mental health care in Spokane County?  Vote for a tenth-of-a-percent county sales tax add-on.  The same goes for certain public safety expenditures, bus service, criminal justice funding, jail funding, etc.  The end result?  The state tax rate of 6.5 percent shoots up to 8.7 percent in the city of Spokane, and 8.1 percent in Spokane County.

So…Is New Hampshire Actually Anti-Tax?

Keeping in mind that it tends to be dangerous to make blanket assumptions, there are some clear takeaways here:

• New Hampshire is one of two states without a general income or sales tax.
• Between the top two property-tax states, New Hampshire is the only one that doesn’t have both an income tax and a sales tax.
• Only six states have a lower individual tax burden than New Hampshire.
• It’s accepted practice that politicians promise not to institute a general income or sales tax.
• Polling shows that Granite Staters wouldn’t support a politician who did want to institute a sales tax – -by a 2-to-1 margin.
• Meanwhile, residents of two other states — which conventional wisdom would say are on opposite sides of the political spectrum — have continually voted to raise their own sales taxes.

So is New Hampshire actually an anti-tax state?

All signs, it appears, point to “yes.”