This 1942 poster was distributed by the War Production Board. Financing war efforts from the colonial wars forward meant that governments had to raise taxes as well as borrow. |
"previous to any law being made to raise a tax, the purpose for which it is to be raised ought to appear evidence to the Legislature to be of more service to the community than the money would be if not collected.’ Vermont Constitution, 1793
The earliest movement to separate the American colonies from
Great Britain s inspired by the issue of taxes.
As soon as New Hampshire and Vermont were established as political
entities, their governing bodies moved to collect taxes from the inhabitants to
cover governmental expenses.
This column explores the history of taxation in the two
states from their beginnings to the early 1940s. Information was collected from town
histories, newspapers and online sources. Especially helpful was the Vermont
History article “The Evolution of Vermont State Tax System” by Paul
Gillies.
This history of taxation is too complicated and
controversial to cover thoroughly in an article of this length. The following
touches on just some of the major developments during this history..
When I taught units on taxation, I described the
characteristics of an effective tax system. These include fairness, with each
taxpayer paying his fair share, based on ability to pay. The system should be
adequate to meet the basic needs of government programs. It should be easily
understood and complied with. Transparency of the tax system means easy access
to information from collection to appropriations. Finally, it should not be too
costly to collect.
Over the years, there has been general acceptance that “the
best tax is always the lightest.”
Governments levy taxes for a number of reasons with the need
to pay for government programs being primary. So-called sin taxes are levied on
items or behaviors considered undesirable, such as tobacco or liquor. Tariffs
can be used to protect domestic industries. Licenses and fees regulate those
who are allowed to practice a profession or activity.
New Hampshire was a royal province from 1680 to 1776. Taxes
were generally decided by the Royal Governor and his appointed Executive Council.
The representative assembly was given the power of consent. Property taxes were
levied based on the value of assets and on the assumption that those who owned
the greatest amount of property were the most able to pay. Taxes were also
levied on shipping, mills and craftsmen.
Once the pattern of taxation was established there were few
changes until the 1770s. There was a consistent problem of concealment of
assets from assessors and taxes were often met with “mutinous and rebellious
disposition.”
During the period from 1688 to 1763 there were a series of
intercolonial conflicts known as the French and Indian Wars. New Hampshire
communities found themselves on the front lines of those wars and the
extraordinary cost of protection was borne in part by the province and its
taxpayers. Lotteries, fees, fines and bonds offered some relief from property
taxes.
Those expenses also created a financial burden for Great
Britain. The resulting new taxes levied by Parliament on the colonies were a major cause of the American
Revolution.
Most of the towns in our region were part of the New
Hampshire Grants and were under the control of the provincial government. Until
property transferred to resident owners, the initial taxpayers were often
absentee proprietors. Local property taxes were determined by meetings of the
eligible male voters.
The lack of a stable and convenient currency created a
problem for local tax collectors. Local taxes for the town church, roads and schools were often
paid in kind through labor or crops. Taxes paid in corn or wheat put the local
government in the produce business. In 1791, Haverhill’s highway taxes could be
paid “in labor at three shillings per day, or other articles in proportion.”
Although it continued
to be a policy until the early 19th century, taxes to support the town church
created resistance from some locals.
As Vermont became a separate entity, the cost of government
was borne in part by the sale of property confiscated from Tories. The
resulting low tax burden made Vermont attractive to new settlers. Except for a
state tax on towns to pay for the war, state government’s needs were small and
the attitude toward new taxes was very conservative. In towns such as Corinth,
suffering from the financial recession of the late 18th century, the threat of
property seizure was needed to assure compliance.
Early in their statehood, both states made a major change in
their voting laws and allowed all free adult males to vote without a property
requirement and with the payment of a small poll or head tax.
Both states and their local communities recognized the need
for public education. By 1810, district primary schools supported by property
tax were established in area towns. In 1811, for example, Newbury voters raised
one cent on the dollar of appraised value for schools. In 1828, New Hampshire created its Literary
Fund, marking the first time that state funds were allocated to towns.
In 1849, New Hampshire became the first state to authorize
towns to levy taxes in support of public libraries. Vermont followed suit in 1865.
During the same period, the national government relied on
tariffs and an excise tax on liquor as major sources of income. They were controversial. In 1791, the federal
government placed an excise tax on distilled liquor to pay for the debts of the
Revolution. In 1794, the farmers of western Pennsylvania were in openly revolting against that tax.
A series of tariffs passed by Congress to protect northern
industries from foreign competition was a major cause of the sectionalism that
resulted in the Civil War. To finance that war, the United States passed the
first federal income tax in 1861. Local towns were saddled with debt from bonuses they awarded to local
combatants.
Like during the colonial period, assessment of property
remained a problem. Property owners were allow to appraise their own property.
With some assets easily hidden, the system was open to underreporting and
fraud. It was not until 1833 in New Hampshire and 1841 in Vermont that full
appraisal by local listers was established.
An article in The New England Farmer in 1860 referred to
property tax as being “unjust and oppressive.” This inequality of taxation had
“a tendency to discourage young men from engaging in agricultural pursuits.
Farm and stock cannot, like cash and notes of hand, be concealed.” There was also the problem of taxing standing
timber prior to it being harvested. This practice help to encourage deforestation.
In the latter half of the 19th century, both states
frequently tackled with tax issues. New taxes were levied in both states
against railroads, financial institutions and telegraph and insurance
companies. In 1896, Vermont passed its first inheritance tax.
These new laws impacted local businesses. In April 1898, the
following notice appeared in The United Opinion: “On account of the excessive
state corporation license tax, the North Thetford Water Company voted to annul
their charter and cease to do business as a corporation.”
New laws defined the responsibilities of local communities,
their power to tax and the role of the grand lists and listers. In 1890,
Vermont passed a law requiring towns to appropriate funds for the support of
public schools.
All levels of government attempted to deal with tax evasion.
Notices in The Vermont Phoenix in 1882 referred to the significant penalty for
failing to report an accurate personal list of taxable property. In Vermont it
could result in a doubling of the amount due, while in New Hampshire the
offender was forced to pay a quadrupled tax.
A search of Vermont newspapers reveals that local tax
collectors or treasurers published notice of taxes due. They often set up
collections in local hotels and offered discounts for early payment. As
communities took on new responsibilities, taxes were increased. For example, as
free bridges replaced toll, towns had to assume the financial burdens
involved.
An example of the impact of local taxes can be seen in the
1891 statistics for Newbury. The town’s grand list was $15,599, a figure that
represents one percent of the appraised value of taxable property. The voters had accepted a town tax of 50
cents and a highway tax of 15 cents. The latter raised $12, 479, which along
with the town’s share of state highway tax helped Newbury maintain its
extensive road system.
Two decades later, The United Opinion carried the following:
“ There is a prospect of a 90 cent school tax for the coming year instead of
$1. Let us all rise up and sing ‘There is sunshine in our home today.’ The
taxpayers of Newbury should congratulate themselves in the able and business
manner their affairs have been conducted this past year.”
Not was all sunshine. Property was seized for non-payment of
taxes, with seizures increasing during economic downturns. In 1887, the assets
of the Vermont Copper Mining Company in Vershire were sold in a tax sale.
There were those who often felt they were not getting a
proper return for their taxes. In 1896, a resident of the Ricker’s Mill
neighborhood complained that there was no local benefit from Groton’s
snowrollers. “We pay our taxes and get little in return.”
In 1904, a letter to the St. Johnsbury Caledonian pointed
out that taxing women without giving them the vote was taxation without
representation.
Despite that, property tax remained the principle source of
revenue. As villages residents began to require services not needed or
practical for rural areas, villages governments were established. The Woodsville
Fire District was chartered in 1878, Wells River Village in 1888 and the
Village of Bradford in 1890. Property owners within those district were taxed
for sidewalks, village streets and fire protection.
The federal government expanded its tax base significantly
in the first four decades of the 20th century. A tax on capital gains was
implemented in 1913. In 1916, the passage of the Sixteenth Amendment cleared
away legal challenges to a federal income tax. That year a federal estate tax
was also passed. A federal gasoline tax was added in 1932. In 1935, the Social Security program was
created, with benefits going first to workers and later expanded to survivors
and the disabled.
During the two world wars, the tax rates were raised to meet
the expanded military budgets. During World War II, the government implemented
payroll withholding of income taxes.
During that same period of time, Vermont’s tax system
underwent major changes. During the
first three decades of the 20th century, both states added or increased excise
taxes on items ranging from gasoline and Christmas trees to ice cream. In 1915, Vermont’s state property tax was
increased to support reorganization of local schools.
World War I added costs to both local and state governments
and taxes were raised accordingly. An article in several Vermont newspapers in
1919 stated that New Hampshire taxes had almost tripled and Vermont taxes had
doubled in just one year. A portion of those increases were for bonuses for
service personnel.
For the five years after the flood of 1927, Vermont adopted
a special flood tax to cover the costs of rebuilding damaged public
infrastructure. In 1929, both states considered adding an income tax.
In Vermont the Legislature adopted an income tax in 1931. It
replaced the state highway and education tax as well as the general property
tax. This tax became the basis of state revenues at that time.
In New Hampshire, an income tax was first considered in 1929
and then again in 1937. While the state
came close to passing the tax, the Boston Globe caught the opposing mood of the
residents: “Around the big-bellied stove of a country store in a New Hampshire
town men sit and growl about taxes.”
Since that time each
states have struggled with the need to finance essential government
services. Vermont added a sales tax in 1969. Guarded by The Pledge against
them, New Hampshire has resisted the passage of either a general sales tax or
an income tax. Taxes on businesses, a state property tax and room and meals
taxes are its major sources of tax revenue.
The Tax Foundation figures for 2015 show the differences
between the impact of taxes in the two states. In Vermont, the per capita local
and state tax burden was $11, 176 with 43.8 percent coming from property taxes.
New Hampshire’s per capita was $8, 012 with 65.7% derived from property
taxes.
Throughout our history, taxes have been the topic of
considerable debate and even rebellion. Most citizens begrudgingly pay their
taxes. They are usually more willingly when the taxes support programs of personal benefit.
Their attitudes are somewhere between fiscal philosophy of
the late U. S. Supreme Court Justice Oliver Wendell Homes and the late New
Hampshire Gov. Meldrim Thompson of Orford. The former said, “I like to pay taxes. With them I buy
civilization.” The latter said, “Low
taxes are the result of low spending” Therefore, “Ax the Tax.”