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Education Funding Plans |
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ISSUES |
DRAFT EDUCATION FUNDING PLAN FOR FY 2002 & 2003 Funding for Adequate Education Grants by the State:
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CHOICES: PLAN A: (like
original Hager/Below/Fernald plan, HB 109 as passed by the
Senate, 3/25/99) · 3 sources of funds for adequate education grants: ·
Simple
Flat Rate Personal Income Tax @ 3˝ % of Adjusted Gross Income (AGI) after standard exemptions ·
$3-$4/$1,000
state-wide property tax on commercial property & 2nd homes
only (100% exemption of primary residences, including school dorms &
dining halls) ·
Existing
Sweepstakes Net Revenues (about $62 to $65 million/yr.) PLAN B: (like
Below/Squires Amendment to HB 109, as passed by the Senate,
10/22/99) · 2 sources of funds for adequate education grants: ·
Simple
Flat Rate Personal Income Tax @ 4 % of
AGI after standard exemptions
·
Existing
Sweepstakes Revenues · REPEAL STATE-WIDE PROPERTY TAX COMMON TO BOTH PLANS: (Note: In the last
legislative session it was difficult to consider refinements or options
for an income tax, circuit breakers on the property tax, or other revenue
options due to the lack of analytical tools.
Due in large part to my efforts, the State has contracted for the
development of a complete system of tax policy modeling software and
related database development that will allow detailed analysis of many
policy options including much more accurate revenue forecasts and dynamic
modeling of macro-economic impacts. This
state of the art computer modeling system should be operational by this
winter to help the legislature to select the best package of options.) · Standard Exemptions of: · $12,000 per taxpayer ($24,000 per couple). All standard exemptions to be indexed to increase with inflation. ·
$3,000
to $4,000 per dependent ($30,000
to $32,000 for a family of 4) ·
possible
$3,000 to $4,000 per single head of household (such as a single parent) ·
possible
$3,000 to $4,000 of earned income for each dependent (e.g. students) · Renter’s Credit against income tax (under Plan A, possible under Plan B) of $300 - $400 (approximating what landlord may be recouping for state-wide property tax in rents). · Change distribution of adequacy funding to go directly to cooperative districts instead of individual towns. Tax effort caps or hardships grants to go to towns. · PROPOSED TAX EFFORT CAP or HARDSHIP GRANTS, so property poor towns receive additional targeted aid over and above adequacy grants (such as by limiting the tax effort to raise additional local school dollars to 110% of the average state tax effort). To be funded with income tax revenue in excess of adequacy requirement. · Fund REPEAL of existing 5% Interest & Dividends Tax and 18% NH Legacy & Succession Tax by returning other taxes from Education Trust Fund to General Fund. ·
POSSIBLE ADDITIONAL REPEALS OR ROLL BACKS: · Recent Real Estate Transfer tax increase · Business Enterprise Tax (BET) (repeal or roll back from .5% to .25%) · Business Profits Tax (BPT) (roll back from 8% to 7%) · 8% Auto Rental Tax · Telecommunications Tax (from 5.5% to 5% or less) · EXCLUSION OF INCOME FROM NH TAXABLE INCOME: · Capital gains income derived from sales of timber subject to timber severance tax. · Income, including capital gains, rents, and interest which is taxed under the BPT. · Earned income from out of state employment. ·
POSSIBLE ADDITIONAL REFINEMENTS TO INCOME TAX TO
CONSIDER: · Exclusion of military and other pension benefits from NH taxable income. · Exclusion of that 20% portion of all NH social security benefits included in AGI. · Additional standard exemption for elderly. · Itemized deduction of charitable contributions. (NOTE: taxpayers who itemize now on their federal return can itemize and deduct from their federal taxable income the amount of state income taxes, offsetting the cost of the state income tax by their marginal federal tax rate.) · Exclusion of long term capital gains or a targeted exemption of capital gains from investments in NH businesses. · Shift of existing taxable income from BPT (at 8%) to Personal Income Tax (at 3.5% to 4%), such as from rental, sole proprietor, partnership, and subchapter S Corp. income. · PROPOSED CIRCUIT BREAKER, so no one (or no one on limited or low income) pays more than 7% or their income for all property taxes on their homestead (primary residence) and no more than 9% of their income on all such property taxes plus income tax.
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KEY ADVANTAGES:
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Based on ability to pay, like the property tax was
200 years ago. Tax burden for
education is directly proportional to the individual and societal benefits
that derive from having good public education: the ability to prosper and
earn a good income. · Grows with the economy: population and personal income. For example, the tax base, federal AGI for NH, has grown by an average of 8%/yr over the past 15 years, compared with 7.7% growth in K-12 spending and only 6.1% growth in property values. ·
We should capture on the order of $80 to $120 million in
taxes that are already being paid but are flowing out of state and to
the Federal Treasury. NH
will capture growing tens of millions of income tax now being paid to
neighboring state by their residents who commute to NH.
Plus NH residents who itemize on their federal taxes can offset up
to 40% of their NH tax liability with reduced federal tax liability.
Can
State Education Adequacy Grants be used for anything other than
school district budgets? NO!: NH law, RSA 198:48 “Maintenance of Local Control” requires “that adequate education grants must be expended for educational purposes. Adequate education grants and hardship grants shall not be considered unanticipated funds under RSA 198:20-b.” This means that all state grants for adequacy must be applied as revenue against the officially adopted budget and will automatically reduce the local school tax rate (as applied and calculated by the NH Dept. of Revenue Administration) unless the local school district votes through its normal budgetary process to otherwise increase educational spending. 10/28/00 |