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Pro-Growth Income Taxes

TAX politics is shifting dramatically in New England. The champions of change are pressing for an income tax. And they are winning.

Until two weeks ago in New Hampshire, a gubernatorial candidate who wanted to win had to take "the Pledge" to veto all broad-based taxes. To everyone's astonishment, an unabashed income-tax advocate, state representative Deborah "Arnie" Arnesen, captured 51 percent of the vote in a three-way Democratic primary that all the smart money said would be won by the Pledge candidate, former Congressman Norm D'Amours.

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A recent University of New Hampshire poll shows Ms. Arnesen in a tight race against Republican Steve Merrill, heir apparent to the Sununu-Gregg "limited government and no broad-based taxes" school of politics. She trails him just 37 percent to 32 percent, the closest race at this stage of the campaign for a non-incumbent Democrat in New Hampshire in almost 20 years.

Earlier this year in Connecticut, 300,000 people gathered at the state capitol in Hartford, demanding that Gov. Lowell Weicker "Ax the Tax." Mr. Weicker's popularity plummeted and pro-income-tax state representatives cowered.

But in last week's Connecticut primary, income-tax supporters proved victorious, too. Ten of the 11 Democratic state representatives facing serious challenges by income-tax-repeal candidates - and four of the six Republicans - won handily. Now Weicker's popularity is up from 23 percent favorable to 47 percent.

Why the change? The tax-reform debate has shifted from a focus on fairness to a focus on economic revitalization. In the 1980s the tax-reform movement focused on the income tax as less regressive than sales taxes and other levies and thus a better way to redistribute the cost of social policy. Groups like Citizens for Tax Justice issued reports chock full of data that proved tax reform made sense. But many voters didn't quite buy it.

Instead, the public saw government as a bottomless pit, an insatiable bureaucracy that would devour as much public money as it could. Voters still preferred the sales tax because they believed it gave them more control over their money. In the end, they said, adding an income tax to create a fair tax structure only gives government another tax to keep increasing.

But then, states once flush with revenues plunged into the red. They cut spending, formed commissions on how to streamline government, and increasingly passed costs on to localities, which were forced to raise property taxes to pay the bills.

In the '80s, when state governments faced budget deficits, voters blamed mismanagement. Today they blame the recession or failed Bush-administration policies.

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Our research in both Connecticut and New Hampshire shows that 3 out of 4 voters also believe that the state governments can do things to improve the economy in their states. They see a relationship between the state's fiscal stability and economic growth. They tell us, "I wouldn't bring a business into a state that was broke."

In the 1990s the income tax has less to do with fairness and more to do with economic sense. It is needed to insure fiscal stability, to provide resources for investment, and to reduce the burden on small businesses so that they can survive the recession and maintain jobs. The income tax is seen as pro-growth.

The business community has grudgingly become an income-tax supporter, if not an outright advocate. The Connecticut Business and Industry Association's support of Weicker's income tax as necessary to promote stability and allow for growth had affected voters. Last year, the New Hampshire Association of Realtors announced a radically new position, too, saying that if tax reform is inevitable, an income tax is the way to go.

Voters want their state governments to stop drifting through this recession and to start taking some active steps to revitalize the economy. They are willing to support an income tax if it is the necessary price for this constructive change.

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