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Editorial: Two decades later, New Hampshire’s unfair tax system remains

In 1991, New Hampshire was nearly forced to reassess its regressive tax structure. It escaped that time, but the state faces a deficit this year and a bigger budget hole next year, and there may not be any more rabbits under the revenue hat. If, as it should, the plan to license a casino fails – and in the long run even if it succeeds – the state’s unfair and failing tax structure will need revision.

But back to 1991. Seven New Hampshire banks, included most of its largest, failed. The state budget prognosis appeared hopeless. Then, one day, a state Health and Human Services employee read about how another state was using a loophole in federal law to get a small increase in federal Medicaid payments. The worker immediately understood that what another state was doing in a small way, New Hampshire could do in a very big way and he told his boss, then-Health and Human Service Commissioner Harry Bird. And thus, with immediate support from lawmakers and then-Gov. Judd Gregg, what came to be called “Mediscam” was born. A state tax on hospital revenue was levied and used to receive matching federal Medicaid funds meant to compensate hospitals that treated a disproportionate share of low-income and charity care patients. The state kicked back the tax, thus holding hospitals harmless, and put the federal match in the general fund.

“My bet is that it’s only going to last a year,” said then-Rep. Doug Hall, a Chichester Republican who worked on the plan. “It’s a neat idea, but it’s also a legal scam.”

On April 14, Monitor State House reporter Ben Leubsdorf wrote about the plan, which by taxing the state’s hospitals and receiving matching funds from the federal Medicaid program for the amount raised, has netted the state’s general fund more than $2.3 billion over the past 22 years.

Few states became as dependent on Mediscam, officially known as Medicaid Enhancement Tax revenue, as New Hampshire. The MET netted New Hampshire $175.5 million last year, but its future is in flux. In theory, the 2010 Affordable Care Act,by making it possible for most people to afford coverage, should dramatically reduce the need to compensate hospitals for caring for the uninsured. As a result, the amount of federal money allotted for disproportionate share payments is scheduled to go down every year between now and 2020.

It will be a few years before the federal changes have a big impact on New Hampshire, but state revenue from the MET is expected to decline. And meanwhile, the situation on the home front is a mess. In 2011, to balance a shortfall created by the recession an the state’s structural deficit, the Legislature voted to stiff large urban hospitals and keep both their tax payment and the federal match. Hospitals were forced to lay off employees, and they sued to get their money back. That suit, one hospitals deserve to win, remains in federal court. Win and they blow a hole in the state budget.

Hospitals can be expected a make every effort to reduce their tax liability. That means less revenue for the state going forward. They also have the state over a barrel. The state is counting on netting a savings by moving to a managed care system for Medicaid patients, but they need hospitals to sign on to do so. Hospitals are holding out because they want their money back and don’t want the state to tax health care to fill the general fund.

Then-state Sen. Jeanne Shaheen, in a 1991 quote retrieved by Leubsdorf, got it right when she called the MET “more of the shell game that we are playing with the state budget, because we aren’t yet willing to face up to the fact that we have got a tax structure that doesn’t work anymore.”

We weren’t then, we weren’t when Shaheen was governor, and we aren’t now.

Legacy Comments7

So how is it fair to add an income tax if its in addition to property tax?

the problem is not Not NOT taxes ....the problem is SPENDING !!!!!!....what is incomprehensible is that liberals simply don't realize that replacing one tax with another tax NEVER reduces taxes

What conservatives fail to comprehend is that liberals aren't looking for reduced taxes. We're looking for fair taxes. We KNOW that replacing one tax with another doesn't reduce taxes, but reducing taxes is not our goal. Your statement here is not the proof you think it is for liberal stupidity.

Believe me...we get it. I always like the look of the low information type who believes that an income tax will lower their property taxes.

Only if it's tied to a direct reduction of the property taxes.... which will never happen here.

"In theory, the 2010 Affordable Care Act,by making it possible for most people to afford coverage, should dramatically reduce the need to compensate hospitals for caring for the uninsured." Is that true ? I'm sure there are some people that can afford insurance but choose not to buy it, but I bet the vast majority can't afford it.

News you wont get at this liberal rag...... Obama´s Budget Would Lead to the Highest Federal Tax Rate in 4 Decades........Atlantic Magazine, by Derek Thompson

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