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One of the hallmarks of New Hampshire government is its insistence on maintaining low personal and business tax burdens. To that end, there’s no broad-based standard income, sales or estate tax. Inventory, capital gains, and professional services are also tax-free.Unlike other New England states, however, New Hampshire maintains two major business taxes. The first to be instituted was the Business Profits Tax (BPT). But since the bulk of the state’s businesses range from the small-to-very-small, larger firms complained they were shouldering the bulk of the tax burden. So 1993, the Legislature instituted the Business Enterprise Tax (BET). As Jennifer Weiner writes in “How Does New Hampshire Do It?,” a report released by the Boston Federal Reserve, the BET taxes “wages and salaries, interests and dividends paid by businesses.” In other words, it is, technically, an income tax, but the burden’s placed on businesses, rather than individuals. At 0.75 percent, the BET is also a lower rate than a standard state income tax.The other major piece of New Hampshire’s revenue pie is property tax. Residents pay both a state and town property tax. In 2010, Kiplinger’s reports the State Education Income Tax was “$2.35…per $1,000 of total equalized valuation.” Town rates, meanwhile, can vary widely across the state. If you don’t combine New Hampshire’s two business taxes, property tax makes up the largest slice of revenue, at 16 percent.Another notable aspect of New Hampshire’s tax system, as Weiner notes in the Boston Fed report, is that it’s highly diversified. No one tax makes up 20 percent of money coming in. Other major state taxes include Meals and Rooms, Tobacco, Liquor Sales and Distribution, Real Estate Transfer, Interest and Dividends, Insurance Premium, Communications, and Utility Property Taxes.Summary provided by StateImpact NH

How Will State Tax Cuts Affect Education Funding In N.H.?

File Photo, NHPR

Gov. Chris Sununu signed the final version of the New Hampshire budget last week, which included millions in property tax cuts.

NHPR’s Morning Edition host Rick Ganley talked with Ethan DeWitt, education reporter for New Hampshire Bulletin, about how these cuts might affect education funding for local cities and towns.

[Find everything you need to know about what’s in the budget and what’s not.]

Rick Ganley: Ethan, the Senate voted last week to approve a $100 million cut to the statewide education property tax in the state budget, but with no change in how the tax is distributed. I'm wondering if you can explain the Republican push for this cut and what it could mean for local school districts.

Ethan DeWitt: Sure. So I think the first thing to do is explain what this tax actually is, the statewide property tax. So if you're a local property tax owner here in New Hampshire, you will generally see two tax lines related to education. You have your local education tax, and that's the one that's determined by what your school board puts into its budget. And there's a lot of factors. It's what's in the budget, what is approved by the voters, what property values your town has, and a number of other factors. So that varies widely from town to town, that local tax.

And then you have an additional tax called the statewide education property tax. And people refer to it by its acronym, the SWEPT tax. And this is an additional tax that's added on top of that local education tax and it's mandated by the state. So towns are required to collect this tax for their schools. That money doesn't actually go to the state. It stays in the town, but it is required to be collected. And for this tax, there's no flexibility or variation from town to town. You don't get as much of that local control because by law, the SWEPT tax has to collect a certain amount from all the towns every year. And even though that money doesn't go to the state, that has to hit a threshold.

So this year that number is $363 million. So what Republican lawmakers have done in this year's budget is they've cut that target number, that $363 million down to $263 million. So that's a pretty substantial cut. That's about 28 percent less in what the state needs to collect from this additional SWEPT tax from all the towns overall. So theoretically, that translates into a 28 percent cut in what every town needs to put in in order to get the state to that level. So the Republican lawmakers are using the levers that they have to lower this statewide mandated cut in a way that they say will kind of raise all boats, because it will be an across the board reduction for towns of any kind of property valuation level.

Get NHPR's reporting about politics, the pandemic, and other top stories in your inbox — sign up for our newsletter (it's free!) today.Rick Ganley: Yeah, but can you give us an example of how that would play out differently for different communities across the state?

Ethan DeWitt: Sure. So there was an analysis by [Reaching Higher NH]. It's a state policy group that looked at how this SWEPT tax, when combined with some of the other cuts to aid, might affect one town versus another. So if you take the city of Berlin, for example, that $100 million swept cut could help the city recover about $177,000 in taxes. But at the same time, the cut to the aid would mean the city loses out on $1.6 million in funding. So $1.6 million loss in state aid versus $177,000 in tax relief. Obviously, on the balance, that means less money going to Berlin, and that means hard choices for Berlin's school board.

You compare that to a richer town like Moultonborough, for instance, Moultonborough didn't need that fiscal capacity aid to begin with. So when that aid gets cut, it doesn't actually affect them. They won't lose out on its absence. But a SWEPT tax cut would benefit them. They would see about $1.8 million in tax relief that they can pass on to their taxpayers. So they're actually able to lower taxes, where some argue that cities like Berlin might have to raise taxes or cut some programs based on the current situation.

Rick Ganley: But now some Republicans will dispute those numbers, no?

Ethan DeWitt: Yes, some have said that this is a little bit of a rudimentary analysis because it doesn't take into account some of the other things that this budget does to help towns lower property taxes. There's an increase in the sharing of the rooms and meals tax with towns, for instance. There's an increase in school building aid funds. There's also a lot of federal COVID-19 aid money that's going to those schools. So there's a lot of fluid kinds of numbers and dollar amounts that could affect how much towns have to raise or lower taxes. And it's an example of how difficult it is to pinpoint. But the [Reaching Higher NH] analysis does underscore how one funding policy can affect different towns in different ways.

Rick Ganley: Another education funding provision that made its way into the budget this session was a school choice program that Republicans are referring to as "education savings accounts." The idea here is to give taxpayer dollars to families to help pay for education costs like tuition to private or parochial schools. You wrote a piece for the New Hampshire Bulletin taking a look at how many families are likely to actually participate in this program. So what did you find with that?

Ethan DeWitt: Sure. And I just want to say this has been an endless debate ever since these education savings accounts have been proposed. And the reason why it's important is because opponents of these education savings accounts say that they will take money away from traditional public schools, because parents will take the money out and then that will kind of lead to programs having to be cut down the road. Defenders say there may not be as much of a take up as proponents fear. It's hard to really nail this down, but there are a few pieces of information. The Department of Education has projected that there would be 28 students in the first year, 677 in the second and about 3,000 in the third. But a lot of that is based on the experience of other states, which is hard to kind of draw a one-to-one comparison.

There is a scholarship fund that does exist in New Hampshire that has a lot of the same parameters, is available to the same families, and allows parents to move students out of their public schools and take advantage of scholarship funding. I talked to the director of that and what she told me was basically her program, which has existed since 2012, has had slow and steady growth. There hasn't been an explosion in any direction. She's kind of gotten about 100 students per year. And so that indicates that this school voucher program might not be the explosion that the Department of Education suggests. But there are some factors that might make it so, one of which is actually the pandemic.

So actually, all through 2020 as schools were getting shut down, the calls that were flooding into this children's scholarship fund, which again allows parents of low income families to get some scholarship money to help them move to private school or to try homeschooling, the calls kind of apparently skyrocketed, according to the director. And she said that there was a long wait list. And so whether that continues, whether that was a one short-term, temporary pandemic phenomenon and once schools reopen next September fully, we'll see people go back, that's kind of an open question. And so it's really hard to nail down.

For many radio listeners throughout New Hampshire, Rick Ganley is the first voice they hear each weekday morning, bringing them up to speed on news developments overnight and starting their day off with the latest information.
Mary McIntyre is a senior producer at NHPR.

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