Anti-Tax Tradition Places New Hampshire Governor in Political Squeeze

By Jerry Miller | July 7, 2008 | 8:26 PM EDT

( - What is described as the "New Hampshire Advantage" - the absence of a broad-based income and sales tax as a way to attract business - could come to an end in November, depending on the outcome of the gubernatorial election.

In her recent announcement for a third term, Democratic Governor Jeanne Shaheen refused to take "The Pledge," a long standing tradition, in which candidates for governor and the legislature promise they will not support a broad based income, sales or property tax. Shaheen took the pledge in her first two contests, but ended up breaking her promise last year, when she signed into law a statewide property tax to fund education. Before that, education costs were paid for almost entirely by local property taxes.

Even with the state property tax - which has some cities and towns paying for the education of children in other cities and towns - there is already an education funding gap of more than $100 million. That, Shaheen contends, makes it impossible to again take "The Pledge," to veto either an income or sales tax, should one make it's way through the legislative process.

In making her re-election announcement, the governor said, "Twice before, as I ran for governor, I told the people of New Hampshire that I would veto any broad based tax. I fought hard to keep that commitment. But this year, I can't make that same promise, whatever the political price. I cannot and will not arbitrarily rule out any potential solution to the challenge we face."

Shaheen would have preferred to allow enhanced video gambling at the state's racetracks as a source of new revenue - but that solution has been repeatedly rejected by the legislature. "This is the promise I make to you," Shaheen said. "I will fight for a solution that is good for our kids and smart for our economy, a solution that will stand the test of time...if we're going to reach a long-term solution, we all have to be flexible enough to consider every option and let the facts guide our decision."

Unlike her Democratic primary opponent, State Senator Mark Fernald, who supports an income tax dedicated to education, Shaheen has yet to present her own plan to close the education funding gap, which arose from a New Hampshire Supreme Court decision.

However, she did appoint a "blue ribbon committee" to look at the various options available to the state. In what many see as a smart political move, Shaheen asked the committee to submit its report in January, 2001, well after the November election.

How voters will react to Shaheen's decision to reject "The Pledge" is a matter of conjecture. What is known is that only two governors in the past 30 years declined to take "The Pledge" against broad based taxes, Republican Walter Peterson and Democrat Hugh Gallen and both lost re-election bids as a result. However, New Hampshire's population has grown rapidly since then, with many people flocking to the state from nearby high tax Massachusetts, where people are used to an income tax and large scale government programs. The demographic change has many political wags wondering if Shaheen might just get away with it.

Shaheen's action drew immediate response from gubernatorial opponents on both sides of the aisle. "After four years in office, the governor's answer (to the education-funding problem) is, 'I don't know. Ask me next year. I find it a shocking lack of leadership...the debate is no longer about 'The Pledge.' It's about whether we're going to use a fair income tax or an unfair property tax to fund the state's obligation to public schools," said Fernald.

On the Republican side of the aisle, where four candidates are vying for the GOP nod, former U.S. Senator and gubernatorial aspirant Gordon Humphrey said of Shaheen, "She's incredibly nervy to pull this stunt and I don't intend to let the voters forget they have been as badly treated by this governor as they have...It's just so presumptuous to offer yourself as governor and presume you can get elected without telling people what you stand for and, if you're for more taxes, which tax you are for."

Humphrey has called for a constitutional amendment, which would remove the Supreme Court from further involvement in education funding and has promised to veto both an income and sales tax. However, he contends the recently enacted property tax must stay, for some period of time.

Dean Ouellette, a spokesman for former New Hampshire Attorney General Jeffrey Howard, another GOP hopeful who opposes a broad based tax, said Shaheen has an obligation to present the voters with a plan, before the November election "so they know what they're getting when they vote."

"The election is about a state property tax that will have to be doubled to solve the state school funding crisis," said Rob Varsalone, a spokesman for Republican State Senator James Squires, who favors an income tax. "Dr. Squires is the only candidate who is going to ax this tax."

The possible imposition of an income tax has many in the state's business community angry and fearful. The New Hampshire Business and Industry Association, an advocacy group, has long opposed the levy, fearing it would blunt the growth of business, especially high tech development. The state ranks second in the nation in terms of per capita high tech jobs.

On the New Hampshire seacoast, the state's high-tech mecca, business leaders are especially anxious over the possibility Shaheen might support an income tax. "An income tax is the fastest way to destroy the state's economy. It will tax the capacity to generate wealth," said businessman Ron Mills. "The education problem is only a smoke screen. Only a handful of communities are involved here. Governor Shaheen is New Hampshire's version of (former Massachusetts Governor) Michael Dukakis and will do for New Hampshire what Michael Dukakis did for Massachusetts."

David Colby, a local businessman and member of the board of the Greater Portsmouth Chamber of Commerce, said of a possible income tax, "It's unfortunate. I don't think this governor has shown any leadership in any sense. An income tax is regressive by nature...someone needs to step up and offer leadership." Colby, an advertising executive, characterized the governor's blue ribbon commission as "political cover."