Sun, 28 Oct 2007

Our flinty neighbors to the north.

[Appeared in Woonsocket Call, Pawtucket Times, etc, last week.]

After a column I wrote about taxes, a reader wrote in to ask about New Hampshire. He wrote that they have half the number of state employees there, and still manage to pave their roads, and do it with no income tax and no sales tax. When you write about taxes and state budgets in Rhode Island, you hear a lot about New Hampshire, a fact that amused several of the New Hampshire officials I spoke to. It seems they don't spend much time thinking about us.

But let's clear up some misconceptions about our flinty neighbors to the north. New Hampshire has no income tax, right? Well, sort of. They have no income tax on wages, but they do tax unearned income, like interest and dividends, at 5%. A married couple here have to be making well over $100,000 a year before they're taxed at that rate. New Hampshire has a business income tax of 8.5% to 9.25%, depending on size and they define taxable businesses much more liberally than we do, with three times as many business tax returns filed than here. The business income tax funds a quarter of their budget and 4% of ours. If I, a self-employed writer, were to move to New Hampshire, my state taxes could go up.

What about the property tax? They have lots of towns, and some tax high and some are low. But it's quite easy to find New Hampshire towns where the tax rate is much higher than in any town here. (Try it yourself: NH, RI.) Most of those are the places where the residents outnumber the tourists. Like several of our seashore towns, a lot of New Hampshire belongs to out-of-state owners. When out-of-towners are paying the bills, taxes can be lower, because people whose real homes are elsewhere also educate their children elsewhere, and they don't call the police in the off-season either. We see the effect here, too, which is why Block Island, and Little Compton have low tax rates. So Franconia and Jackson, up in the mountains, have very low rates, while Keene and Jaffrey, in the unfashionable parts of the south, have rates double or triple those.

According to the 2002 census of state and local governments, New Hampshire and its counties and towns raised about $5.1 billion in taxes, while Rhode Island and its towns raised about $4.8 billion. We divided our taxes among about a million people, and they among 1.25 million. So, per person, their taxes work out to about 89% of ours: New Hampshire may be a low-tax state, but it's sure not a no-tax state, which is the image that many people around here seem to have.

Still, 11% lower taxes isn't anything to sneeze at. How do they do it? Mostly, it turns out, by simply not providing things we take for granted here. We have a state Education Department and so do they, but ours gathers data about all the state's school districts and helps plan and suggest curriculum and professional development programs for their towns and theirs does not. We have a Health Department and so do they, but ours is responsible for food inspection and public health issues, and theirs is not. We have town libraries and so do they, but ours participate in a statewide network, with a shared catalog and reciprocal borrowing privileges coordinated by the state, and theirs do not. There are plenty more.

Another big difference is clear when you look into the facts. New Hampshire's social spending is lower in large part because it's a richer state; income is higher and the poverty rate is about half what it is here. Some will say that's because of their low taxes and pro-business "climate". But urban poverty has been a source of trouble for decades, and even back when the two states had roughly equal average incomes, poverty was much higher here, because we've got cities, and they don't. (Manchester, their biggest city, is just a bit bigger than Warwick.) In 1980, the poverty rate was 10.7% here and only 7% there, but the per capita incomes were both about $9,200. We had more poor people, but apparently we had more rich people, too.

So why are the states so different? Why one place grows to regard as normal what another place thinks of as extreme is one of those mysteries that make our world a fascinating place, but there are some obvious differences in geography that seem relevant. Both New Hampshire and Rhode Island abut a state whose economy, driven by its universities, has been one of the more remarkable success stories of the last few decades. But New Hampshire's border with Massachusetts was mostly wide-open rural areas ready to become suburban developments (for better or worse) while much of Rhode Island's border was occupied by cities. As the interstate highways allowed people to flee cities over the past 40 years, New Hampshire gained and Rhode Island lost, for no reason other than geography. I-93 brought people to rural New Hampshire and I-95 took people from Providence.

Heaven knows we don't run our state government very efficiently. Sometimes comparisons with other states can be revealing, but more often what they show is the limitations of such comparisons. New Hampshire is a very different place than Rhode Island. To their credit, they've been able to capitalize on their advantages to prosper over the past two decades. I wish we could agree to capitalize on our own advantages, rather than just wish we had theirs.

20:38 - 28 Oct 2007 [/y7/cols] link

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