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Sunday, April 15, 2018

Taxes of the Past: Rebellion and Revision

This notice was posted around Bradford in 1883 as a notice to taxpayers. Barron Hay, co-owner of the Prichard and Hay Store at the corner of Bank Street, served as treasurer for both the village and town of Bradford. A good choice as he was described as being "strong in business affairs." (Bradford Historical Society)  

TOPSHAM TAX TIME: In 1885, Finette (Jones) Frost, widow of John Frost, was taxed $9/76 on the Power Springs Road farm that she and her husband had established.  It was at a time when many
Vermont farmers were feeling the impact of property taxes levied by both the state and local governments. (Town of Topsham)

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.”