New Hampshire thinks the unthinkable

Two old timers hanging out last week at a Dunkin' Donuts pretty much summed up the traditional New Hampshire view on taxes: They don't like 'em.

Not income taxes. Not sales taxes. Nothing that smacks of big government (defined as the State House in Concord, not to mention Washington).

Yes, suspicion runs deep for Amar Douidi, a retired police officer, and his buddy. The two residents of Manchester, N.H., are firm in their conviction that taxes - once in place - only go up, never down.

But gradually, forces from within and without the Granite State are chipping away at this antitax resolve - so much so that many residents here are starting to think the unthinkable. Now, lawmakers tomorrow face a decision that would make the steeliest Yankee go weak in the knees: whether to levy a statewide income tax.

Under such a move, New Hampshire would give up its ballyhooed status as one of only two states with no broad-based tax. Proponents say it's the only way to fairly fund the public schools - as the state has been ordered to do by its Supreme Court.

But opponents say an income tax would violate all that New Hampshire stands for - and would erase the competitive business advantage the state holds over its neighbors, such as nearby "Taxachusetts."

The decision has brought New Hampshirites to an identity crossroads: Which route will best enable them to maintain their cherished values?

"It really does all come back to 'Live Free or Die,' and for many people that has meant having maximum control over your own wealth," explains David Watters, a professor at the University of New Hampshire in Durham.

Already, the House passed a bill that would create a 4 percent tax on income, with the revenues to be spent on education. The measure passed by only four votes, but everyone agrees even that would have been impossible if not for the court's ruling that funding schools primarily through local property taxes is unconstitutional. The bill is expected to go to the Senate floor this week.

There have been rumbles of protest in the past - that relying so heavily on local property taxes isn't fair and that "sin taxes" on liquor and cigarettes can be stretched only so far. But "The Pledge," a vow taken by most political candidates to oppose broad-based taxes, has so far held those rumblings in check.

New Hampshire, however, is experiencing an economic boom that is bringing newcomers - some with different ideas about government - to its borders. Even though some of these outsiders fled high-tax states such as Massachusetts, there appears to be a new openness here toward the idea of an income tax.

"In the last 10 years or so there's been an incredible growth in the state, and it's pretty clear that not much of that growth has been taxed," Mr. Watters says. He notes, as do many advocates for the income tax, that the property tax especially burdens the elderly.

State Sen. Mark Fernald (D), who says he'd pay higher taxes under the income-tax plan, testified at a Senate hearing last week that he'd prefer a fair system to one that gives him a break at the expense of his elderly neighbors.

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