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What Effect Will Eliminating N.H.'s Tax On Interest And Dividend Income Actually Have?

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Although supporters of the phase-out of the income and dividends tax, it's not clear whether the policy will have the effects those supporters intend.

Folded into the new state budget is a policy that will phase out New Hampshire's tax on interest and dividend income. It's widely supported by Republicans, including Gov. Chris Sununu, and seen by some as an effort to eliminate all forms of taxation on personal income.

Sununu has been promoting the idea that the new policy will attract wealthy people to the state, but there's little data to back that up. All Things Considered guest host Ed Brouder talked with NHPR's senior political reporter Josh Rogers to discuss what the new policy means.

Three Things To Know About The Phase-Out

  • Supporters of the policy, like Sununu, say that this repeal could attract the ultra-wealthy and lower the tax burden on some older people.
  • Tax experts NHPR spoke with are skeptical that eliminating the income and dividends tax alone will likely attract the ultra-wealthy to "park it," as the governor put it, in New Hampshire if they aren't doing so now.
  • It will allow Sununu to say he got rid of the state's only real income tax. We can expect him to tout that during campaign season. It's possible the tax repeal's net effect is maybe less important than the symbolic one.

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Ed Brouder: One policy in the new state budget celebrated by Republicans from Gov. Chris Sununu on down is the phase-out of the state's tax on interest and dividend income.

The move puts New Hampshire on course to join the eight other states that don't tax personal income. Now, while Sununu says the change holds the promise of boosting the economy by attracting more rich people to the state, there's little data to suggest that's the case. Joining me now to discuss the policy change is NHPR's senior political reporter, Josh Rogers. Josh, welcome.

Josh Rogers: Good to be here, Ed.

Ed Brouder: So, Josh, New Hampshire has taxed interest and dividend income at 5% for years. Last year, the tax brought in $137 million, not insignificant, but also not a huge slice of overall state revenues. So, what drove the decision to get rid of this tax?

Josh Rogers: Well, for many Republicans, eliminating this tax really amounts to making good on the state's longstanding political claim that around here we don't tax income. That's a part of this. One backer of the phasing-out of the tax told me it was about removing the asterisk from that New Hampshire's income tax-free image. So, that's a big element of this, at least politically. The fact that the state's running a surplus and has a full rainy day fund did make this a pretty easy call for GOP lawmakers. But, you know, there are policy goals afoot here, too. Why don't we listen to Governor Sununu talking about the tax change with the New Hampshire Journal podcast?

Gov. Chris Sununu: From an economic standpoint, it can just be a huge influx of cash into the state, because right now, a lot of folks, especially if you're ultra-wealthy or something like that, you might be here for a few months, but you're really parking it in other places. And we want that cash here, we want that long-term investment here. We want to start have them invest in their family trusts or whatever it might be, or frankly, just, you know, a retired vet that doesn't want to pay 5% on his pension and he shouldn't have to. So, you know, it's just that simple sometimes.

Ed Brouder: OK, so the governor makes some claims there that getting rid of the tax will attract the "ultra-wealthy" and that it will help retirees who depend on pension income. Are those accurate?

Josh Rogers: Well, it's hard to get too precise about anyone's future behavior. But, tax experts I've talked to are skeptical that eliminating the income and dividends tax alone will likely attract the ultra-wealthy to "park it," as the governor put it, in New Hampshire if they aren't doing so now. But if you look at recent year data on interest and dividends tax filers that the state keeps, you find that only about two percent of those who filed to pay the tax paid more than $10,000, and most people paid less than $1,000.

I suppose you can read those numbers and conclude that the tax is keeping rich people at bay from New Hampshire. But, you know, again, experts I've talked to say most ultra-rich people would have ways to avoid large I & D payments, including via the state trust laws that the governor mentioned.

Ed Brouder: So, what about that hypothetical veteran the governor suggests will soon be able to avoid a 5% hit on their pension?

Josh Rogers: Well, pensions themselves aren't taxed in New Hampshire, except in very rare circumstances. And I guess the governor could have been envisioning a veteran taking his pension and investing or saving in a way that generated interest and dividend income that would then be taxed. But, that's not what the governor said. Governor Sununu's spokesman didn't reply for a request for clarification on this point.

However, it is clear that a lot of the people who do pay this tax are old and or retired. So this change does stand to lower the tax burden on some older people. But in the main, these are older people of some means, so probably not the ultra-wealthy, but people who are pretty well-off.

Ed Brouder: So, on policy, it's pretty hard to make a clear prediction about the impact this tax change will have on people's willingness to move their money to New Hampshire.

Josh Rogers: Well, yes. And that really brings us back to the political and symbolic aspect of this. I mean, this tax phase-out definitely reflects Governor Sununu's overall philosophy when it comes to taxes, which is essentially classic Republican stuff, that tax cuts are almost always good, and that cutting taxes in a way that makes New Hampshire seem more competitive will attract people who have money and that will lead to jobs and prosperity. It also will allow Chris Sununu to say he got rid of the state's only real income tax. And I think we can expect him to say that a lot come campaign season, and on that front, the substance of the taxes, the tax repeal's net effect is maybe less important than the symbolic one.

Julia Furukawa is the host of All Things Considered at NHPR. She joined the NHPR team in 2021 as a fellow producing ATC after working as a reporter and editor for The Paris News in Texas and a freelancer for KNKX Public Radio in Seattle.

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