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Editorial: Wrongheaded tax leaves state in a bind

The suspense continues.

Once again, a court ruling has tied the state budget and New Hampshire’s regressive tax system to the railroad tracks of reform. Last week, Hillsborough County Superior Court Judge Philip Mangones ruled that the Medicaid Enhancement Tax, which the state levies on hospitals, is unconstitutional. His ruling echoed a similar one made earlier by another superior court judge. If the rulings stand, as they should, they will blow a $200 million annual hole in the state budget and challenge New Hampshire’s ability to do business without crippling budget cuts or a major tax increase.

Can New Hampshire escape again and remain one of just two states without either a general sales or income tax? Will fortune intervene as it did in the 1990s, with billions in federal “Mediscam” money that balanced the budget or federal stimulus funds that saw the state through the recession? Will the state Supreme Court uphold the lower court rulings or reverse them on appeal? The answer won’t be known until after the next election, but a successful appeal seems unlikely.

New Hampshire’s Constitution requires that taxes be “proportionate and reasonable, equal in valuation and uniform in rate, and just.” The tax on hospital revenue isn’t, but the question was irrelevant as long as it didn’t cost the hospitals anything. For nearly two decades, the state used the tax to pull hundreds of millions of federal Medicaid dollars through a loophole in federal law. It taxed the hospitals, received equal matching money from the federal government, kicked the tax money back to the hospitals and used the federal match to balance the state budget.

The scheme changed in 2011. Lawmakers began keeping some, or in some cases nearly all, of the money that would have been kicked back to the hospitals. The sham tax became a real tax that led to the loss of hundreds of hospital jobs.

“This legislative history indicates that the primary, if not the sole, purpose of the MET had been to bring federal funds to the state treasury, with the hospitals acting as pass-through intermediaries,” Mangones noted in his ruling.

For the state to argue otherwise, as we presume it intends to do before the state Supreme Court, will require rewriting history.

The tax is unconstitutional, both judges said, because hospitals are taxed on services that are not taxed if they are provided by, say, an urgent care clinic or another non-hospital provider. That is neither reasonable nor just taxation. Instead, it’s akin to taxing an auto dealer on the money earned from an oil change but not a local garage that performs the same service.

What the rulings do not consider is the madness inherent in taxing health services when lowering health care costs is a national goal.

In 1991, then-state senator Jeanne Shaheen called the Medicaid Enhancement Tax “more of a shell game that we are playing because we aren’t yet willing to face up to the fact that we have got a tax structure that doesn’t work anymore.” That structure, with its regressive reliance on high property taxes, hasn’t worked in decades. It taxes most those who can least afford to pay.

If the rulings stand, the governor and Legislature will have few choices: further reduce government services or downshift their cost to local taxpayers; increase taxes; or succumb to the lure of casino revenue.

Casino proponents leapt at the chance to use Mangones’s ruling to renew their push, but it will take revenue from more than one or two casinos to replace the lost hospital tax money. Filling that budget hole by expanding gambling would require that New Hampshire become a very different, and less livable, place.

Legacy Comments18

MET - just another reason for the ~~$17Trillion debt. Lets hope that after the judges all rule it was just a scam and unconstitutional, that the Feds and the hospitals don't come looking for the money back. The NH Advantage, scam the feds and tax the lower wage earners a higher effective tax rate for property tax.

AXE OUR NO TAX PLEDGE - AND OUR OUT-OF-CONTROL PROPERTY TAX! Let's get a sensible, responsible one instead.

Since Shaheen was elected.... democrats have doubled the state budget that took NH centuries to get to there. democrats just since Lynch was elected increased the state budget from 8 billion to $$$$$$ 11.2 BILLION. Taxing is not our problem - democrats SPENDING is our problem.

You probably forgot, or don't want to remember, the House and Senate passed an Income Tax. Governor Shaheen VETOED it.

Fact check time - your source please

Shaheen was in favor of a sales tax I believe.

I suppose the Monitor will never admit that NH already has a sales tax on automobiles that you pay ever year when you register the thing. And it already has an income tax on dividends. They seem to want to continue that silly 'tax-free' NH illusion. Maybe this ruling will indeed make NH a "...very different...place...". Probably not, but we can hope.

The Monitor is not the problem. They have had editorials over the years for an income tax or a sales tax. I remember once an out of state visitor being shocked at having to pay taxes on meals and their rooms. "I thought this was a tax free state" he said. What do they think? A state can run on air. We are not even a self sufficient state. We tax the tourists and scam the Federal government. In many ways we have been a welfare state, letting others pay our way and. Bill O'Brien and his cronies made it worse by bragging they were cutting taxes, but just pushing it down on the counties, and towns. Older people can not hold their homes because the property tax keeps going up and young people won't mover here and buy homes, cause they can't afford the taxes. And the renters are paying high rents because the landlords have high taxes. Tax free state indeed. What a joke.

Dont forget Shaheen proposed a STATE INCOME TAX when she was Gov. ...... a zebra cant change its stripes... She is a Tax, spend, bond & borrow democrat through & through.

What is with you? Can't you remember anything right?

when you cant dispute the facts demonize the messenger - that is the liberal way

Still find it hard to wrap my head around that you went to private schools and Ivy League University. It just seems you should be capable of more critical thinking.

"Critical thinking" means one has to accept the facts even if it is not the answer one was hoping for. I don't think PBR has that ability, the blinders are on too tight.

I don't think you folks prove PBR wrong. Did Shaheen propose a state income tax? The left has no clue how to critically think. You have to have all the facts to think critically. The left only believe what their party says. That is why they cannot dispute the facts, and have no choice but to resort to name calling and changing the subject.

OK, I have found no evidence of proposing a broad base tax, none. Please correct me. Until proven wrong, consider yourself corrected

you didnt look very hard...did you?? At this point, I have to question your ability to perform the simplest of research.....http://www.seacoastonline.com/articles/20010420-NEWS-304209984?cid=sitesearch

that's why my pappy told me .... liberals are like competitors in the special Olympics ... their all go home thinking they won

Shaheen did NOT take the pledge - in the leftist world of politics when something is not specifically affirmed the left pounce all over it as if the politician has taken the opposite view - what is good for the gander is good for the Goose. Did you look at her proposed budget? - tee hee - obviously not

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