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Tax cuts in one place could mean an increase in another place

  • Jeanne Dietsch STEVE LIPOFSKY

  • File photo A two-person Whack-A-Mole game. File photo


Thursday, February 08, 2018 3:50PM

By JEANNE DIETSCH

For the Monadnock Ledger-Transcript

Tax policy can be like playing arcade Whack-A-Mole. Beating down one tax sends another popping up elsewhere. Anyone who gasped upon receiving their second-half property tax bill can confirm that. But tax policies are changing, at state and federal levels. Will 2018 be different

The purpose of any policy should be to solve problems. Here in the Monadnock Region, our biggest problems are: workforce and housing shortages, high property taxes, and the opioid crisis. Will new tax policies at the federal and state levels help? That depends 1) on how recipients use their benefits, and 2) on how legislators curtail budgets in order to pay for cuts.

If companies use tax breaks to give low-income workers a permanent raise to living wages, it could make a huge difference. It would reduce labor shortages, increase retail sales and even reduce social services costs in our state! However, few companies hand out raises just because they have more profits. They give raises in order to gain or retain good help. Or because a union or regulation forces them to do so. Companies are more likely to retain additional profits or distribute them to shareholders. Our largest companies’ owners are in Europe, Japan or in other parts of the US.

Local company owners and other high-earning individuals, who’ll receive the bulk of tax deductions, tend to invest their extra cash. Some may try spend it to upgrade their homes here. But hire a contractor in the Monadnock Region? Good luck! They’re booked far into the future, trying to keep up with housing demand.

And this is where Whack-a-Mole comes into play. Many real estate owners will be setting up holding companies for their investment properties, to take advantage of the new pass-through deduction. But will landlords lower rents to share their benefits with tenants? Why would they, when every residential unit they have is snapped up? In fact, they will probably raise rents. That is because, next door in Massachusetts, people will be able to deduct less of their state income and property tax. More Bostonians will be heading north. Residential demand will increase.

But if rental and housing costs continue to rise and wages do not, the people moving here from out of state will not be factory workers. Most likely, they will be more commuters, tele-commuters and affluent retirees, people whose money comes from out of state.

This could be good for the arts, restaurants and entertainment, but it will not solve our core problems of workforce attraction or housing costs. But maybe it will help with property taxes and the opioid crisis?

Unfortunately, no. Higher property values increase a town’s share of education costs, according to most SAU formulas.

But the biggest pain will come from slashed federal funding. Money returned from Washington pays for $3 in every $10 New Hampshire spends. More, if you count federal support for local expenditures. When budget time comes around this spring in Washington, Congress plans to cut Medicaid subsidies, combine public education funding into smaller block grants and maybe even change Medicare and Social Security.

Meanwhile, our state legislature has vowed to cut Medicaid expansion, public education and some other programs. Medicaid funds many of our opioid programs. Cuts there mean we have to find another way to raise funds that are already too low to cover long-term recovery.

Bottom line? Tax cuts in Washington and Concord pop up as higher property taxes and higher healthcare costs here at home. For many people and businesses, the drop in income taxes and business profits taxes could be more than eaten up by increases in other costs!

But that does not mean we need to sit by helplessly. We can choose to mandate a living wage so workers consider moving here. We can revoke the $100 million reduction in state business profits tax that businesses did not ask for, in order to forestall yet more property tax increases. We can fund our universities so that we are not 50th in the nation, starting by cutting capital gains and welfare loopholes, and by optimizing spending for the greatest return. That will help attract young people.

Let’s stop playing Whack-A-Mole games. Let’s resolve to start solving our problems in 2018.

Jeanne Dietsch chairs the Peterborough Economic Development Authority’s Strategic Planning and Telecom committees. She is a three-time tech entrepreneur with a master’s degree in public administration from Harvard Kennedy School of Government.