Automatic Tax Increases: Without Automatic Rollback: HB 482

The bill

HB 482 establishes a process for transfers from the revenue stabilization reserve account, the Rainy Day Fund, when state revenues fall short of plan. It also adds changes to the rates of the business profits tax and business enterprise tax automatically, when the Rainy Day Fund hits a zero balance. Got that? This bill automatic increases taxes and removes spending accountability. It allows infinite over spending without anyone having to go on the record with a vote in support of it or for increasing taxation as a result. This is a very, very, bad idea.

This bill utilizes the Rainy Day Fund to supplement both the General Fund and Education Trust Fund. It isn’t as if there is a prohibition in place from using the Rainy Day Fund now. The way it is has historically been used is for specific needs in tight money times. It is not used as a back-up slush fund with an automatic tax raise feature. The phrase “if they fall below a specified amount” is lipstick on this pig.

The bill also creates a contingency to increase the business profits tax rate to 8.5% and decrease the business enterprise tax rate to 0.50% if revenues in the Revenue Stabilization Reserve Account are zero. Why does it make sense to raise one tax and lower another if the problem is the Rainy Day Fund is at zero? Why don’t both taxes go up with the need for more money? This is clearly an arbitrary and capricious attack on for profit business to the benefit of non-profit business. It picks winners and losers.

Why do we need a legislature if we can just pass an automatic tax Increases

The question to ask here is why is it important to build automatic tax increases into law? There is no need to saddle taxpayers with such a device. Transparency demands we know who caused the overspending. Transparency demands we know who raises our taxes. We should not eliminate accountability for the actions of the legislature.

This bill will creates conflicts with RSA 124:14 Acquisition of Lands by United States; Federal Aid Miscellaneous: Estimated Federal Funds and RSA 9 Budget and Appropriations; Revolving Funds relative to actions required if there is an anticipated shortfall in revenues. This is an unnecessary and flawed piece of legislation with unintended consequences.

Good taxes are easy to understand, transparent and administer

The Department of Revenue Administration states it has no means to determine if the contingency regarding the business tax rates will occur. I also says it has no means to determine the fiscal year to determine the fiscal impact of this bill. There is also no way to know once the shortfall is triggered that the tax increase required will be either too large or too small to meet the need.

Administration of this automated uncontrolled plan, which instantly responds in all cases with a tax increase, will be hard, if not impossible for the business taxpayers to plan for. There is no mechanism provided to communicate mid-year changes in business tax rates. The business community is left with no control of the price of their goods and services. This assumes that in all cases the tax increase will be passed through. No allowance is made for contracted obligations which are locked in.

This legislation requires automatic tax increases. No corresponding mechanism for tax reduction, should there actual revenues exceed planned need, is built in. Apparently the state needs only to raise taxes automatically and they can never come down. Does anyone else think this is an ill-considered piece of unnecessary legislation?

Even the department who will be responsible for administration of this automatic tax escalator understands it will be difficult to administer. The rate change may occur in the middle of a taxpayer’s tax year. The taxpayer may be subject to different tax rates during the same tax year and even differentially in each calendar quarter. This will be a challenge for taxpayers to divide their activity between different rates. It makes it difficult for the Department’s audit division to audit a tax year, with different tax rates. This is a bill full of unintended consequences.

What need is driving this bill?
This is a bill that has no demonstrated need. The Rainy Day Fund is full. This is an attempt; the sponsors knew or should have known, will damage New Hampshire business by raising taxes. Further, the damage isn’t limited to the damage from higher rates like HB 623 and SB 135. This bill is both arbitrary and capricious in how and when it will be imposed and collected. This bill make budgeting by business impossible.

Conclusion:

Finally, this bill arguably removes the responsibility for taxes from the legislature. Is that what we want? If that was what was in New Hampshire’s best interest why not simply be honest. Write the legislation to say we are going to a system of continuing resolutions like the federal government? Taxes will simply increase automatically without respect to willingness or ability to pay. No one in the legislature would have to be responsible for voting in favor of a tax increase ever. No one would have to attend to anything other than how many zeroes to add to the spending bill. Contact your Representatives. Tell them to vote Inexpedient to Legislate on HB.