July 22, 2025 • 43 mins
Is everyone talking about the New Hampshire state budget? Well, if they aren't, they should be, as the budget impacts literally everyone in New Hampshire.
In this part 1 episode, Liz and Phil Sletten (Research Director at the New Hampshire Fiscal Policy Institute) talk about what the heck a state budget is, how it is similar to - and very different from - a household budget, and how state revenues have decreased due to choices by lawmakers (not magic).
Liz asks Phil whether he's a robot and Phil asks Liz to show their work in a math problem.
New episodes every Tuesday.
Become a supporter of the show
Have an idea for an upcoming episode? Email Liz: newhampshirehasissues@gmail.com
Links:
- NHFPI’s Budget landing page
- NHFPI’s “Uncharted” Podcast
- Who is Experiencing Poverty in the Granite State? (NHFPI)
- Business Tax Rate Reductions Led to Between $795 Million and $1.17 Billion in Forgone Revenue for Public Services Since 2015 (NHFPI)
- Households with High Incomes Disproportionately Benefit from Interest and Dividends Tax Repeal (NHFPI)
- New Hampshire’s interest and dividends tax – and why it’s a hot campaign issue – explained (NH Bulletin)
- Average Cost of College by State (Education Data Initiative) – New Hampshire has the second highest in-state tuition cost
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_00 (00:00):
This is the last day of June, so nearly happy new
state fiscal year, everyone.
We're getting to July 1st.
It's happening.
It's sometimes happy for somefolks, not happy for others, but
it is a new state fiscal year.
We'll finally enter state fiscalyear 2026.
SPEAKER_01 (00:16):
Phil, we are recording on state fiscal year
eve.
And I myself will be leavingmilk and cookies out for you
because I'm assuming you goaround and bring the good news
of all things state budget,which is why I'm having you on
the show.
It's a big time for all thelawmakers, for you as well.
SPEAKER_00 (00:35):
For someone who is going around on the new state
fiscal year eve, there is alittle bit of a benefit because
some states don't have a July1st state fiscal year.
So you don't have to cover thewhole country all at once.
But if you need to do it atnighttime This is not a good
time of year for that, right?
It's great if you can do itduring the day, but we don't
have very, in the NorthernHemisphere, we don't have very
(00:57):
many nighttime hours here.
So I would like to fulfill thatwish for you, but that's a lot
of households to get to in theshort nighttimes that we have,
you know, June 30th to July 1st.
SPEAKER_01 (01:09):
I believe in your magic.
I believe in you, Phil.
I have no doubt that you willget it all done for us in this
one night of the year.
UNKNOWN (01:20):
Music
SPEAKER_01 (01:28):
Welcome to New Hampshire Has Issues, a podcast
that dares to ask, can we make aconversation about the state
budget super interesting?
SPEAKER_00 (01:40):
We're going to try, Liz.
I try to do that most days of myjob.
SPEAKER_01 (01:44):
That is your full-time job.
Do you have a tagline for me,Phil?
What do you think?
SPEAKER_00 (01:49):
New Hampshire Has Issues, the podcast that dares
to ask, New Hampshire is a greatstate.
How could we make it better?
SPEAKER_01 (01:56):
Oh, that's like an optimistic spin on the whole
concept.
I love
SPEAKER_00 (02:02):
that.
(02:26):
most legislators do in anytwo-year term that they vote on
in terms of investment is thestate budget.
I mean, this state budget is$15.9 billion over two years.
That's a lot of public resourcethat we are investing in
ourselves in one way or another.
And I think this podcast is agreat venue for asking, how are
we investing in ourselves,right?
(02:46):
If New Hampshire has issues,because there are a lot of
issues to deal with, if NewHampshire has issues, how can we
make the state better throughour own collective fiscal policy
choices?
SPEAKER_01 (02:56):
Phil, you you just summed it all up so beautifully.
A-plus work, as always.
My guest today is Phil Slutton.
He is the Research Director atthe New Hampshire Fiscal Policy
Institute.
Phil, welcome to the show.
I am so happy that you are here.
SPEAKER_00 (03:13):
Thank you, Liz.
It's great to be here.
Thanks for having me on theshow.
SPEAKER_01 (03:15):
Of course.
There is Literally no one onplanet Earth I would rather have
on this show talking about thestate budget.
And I'm not even going toapologize to everybody else on
planet Earth because, Phil, youare the expert on this topic.
You've come up on the podcastbefore.
You came up in the child careepisode with Kenz Nicholson
(03:37):
where, you know, gave you ashout out for the work that New
Hampshire Fiscal PolicyInstitute does.
But I brought up a moment whereI had sent you an email with a
question.
And you responded within fourminutes.
I don't know if you rememberthat, Phil.
SPEAKER_00 (03:50):
I do remember this, yes.
I was lucky to be that close tomy email at that particular
time.
And that was a question I had aclear answer to.
And that does not always happen,unfortunately, with emails.
SPEAKER_01 (04:01):
Okay.
All right, so let's start with asimple question, okay?
The simple question, Phil, isare you a robot?
How do you know so much aboutthe state budget?
How do you do it?
SPEAKER_00 (04:10):
Well, one of the things that I think is important
to remember is that when we arethinking about what our
legislators are working on, whenwe're thinking about what
advocates are working on,thinking about what journalists
are working on, thinking aboutwhat people are working on in
and around the state budget,lobbyists, community leaders,
people who are thinking abouthow the state is funding their
(04:32):
town, they're on the schoolboard or they're on the select
board or a city councilor, theyhave a whole constellation of
things they have to think about,right?
They have to think about, youknow, what's going on relative
to the state budget and alsowith our legislators, maybe the
job that they have, right?
Or what's happening in the othercommittees or what's happening
(04:53):
in their town or what'shappening in their family or
what's happening on the otherbills they may be following.
At the New Hampshire FiscalPolicy Institute.
track a lot of material.
But because of the name, youheard the name fiscal policy
right in there, New Hampshirefiscal policy.
And the biggest piece of NewHampshire fiscal policy is the
state budget.
So we take and I say we becauseit is not just me, there's a
(05:15):
team of now eight of us here atNHFPI.
Yes, it's fantastic.
There were times when there werejust two of us.
SPEAKER_01 (05:23):
I remember those times.
Yeah,
SPEAKER_00 (05:24):
right.
So now with eight of us, I mean,the example that you just gave
about the four minute reply, Iwas able to reply to you in four
minutes, But it was a piece ofresearch that senior policy
analyst Nicole Heller had puttogether.
I just happened to know where itwas, right?
So it is a team effort to knowthe state budget as well as we
do here at NHFPI.
And it is a cornerstone of ourwork.
(05:45):
It is a key part of our work tounderstand what's in the state
budget and explain it for folks,unpack it for folks, because
we're talking about you know, athousand pages.
Most of them are just lines ofnumbers next to standardized
names that don't really describewhat it does, right?
They don't really describewhat's happening.
And then 200 pages of text,depending on what's in the
trailer bill, right?
(06:06):
In the length of the trailerbill.
So there's a lot to sortthrough.
And everyone is affected by thestate budget.
All those folks I listed, youknow, they all are busy.
But we keep ourselves very busywith the state budget.
And that means that we can be aresource for everyone else who
wants to know about the statebudget.
They don't have to learn all thenitty gritty details.
(06:28):
We can and we can unpack themand explain them.
So we don't have to be robotsbecause we've devoted the time
to this because it is thebiggest piece of New Hampshire
fiscal policy that happens.
And that's what we're here to doat the New Hampshire Fiscal
Policy Institute.
SPEAKER_01 (06:41):
I heard you not say yes or no on the robot question.
So I'm just going to say it'sstill maybe.
SPEAKER_00 (06:45):
If I'm a robot, I don't know, right?
Welcome to Westworld, folks.
That happens in science fiction,right?
But as far as I know, I am So
SPEAKER_01 (06:54):
state budget, that phrase, is not like the most
exciting thing ever.
And I'm someone who actuallywatches these meetings.
I read the reports andeverything.
What would be the best way todescribe what a state budget is
to you?
the vast majority of people whoare not paying attention.
SPEAKER_00 (07:15):
So the state budget is how we decide where to
allocate public resources at thestate level.
What do we spend money on?
How do we raise that money?
How do we organize thatspending?
(07:55):
The fun parts of the statebudget, I say fun somewhat
facetiously in that not allstate spending is actually in
the state budget.
It's not that simple that youcan look at the state budget and
see everything the state does.
Okay.
(08:24):
About two-thirds of it arehealth services and education
(08:45):
services.
that health and social servicespart of the pie.
And then another quarter,roughly, is education.
And education includes fundingfor local public education, at
least the funding that comesfrom the state, which, as
(09:07):
listeners to your podcast know,is only a portion of the total
funding that is used by localpublic education.
SPEAKER_01 (09:14):
Shout out to the Zach Sheehan episode.
SPEAKER_00 (09:16):
70% of local public education is funded by property
taxes that are raised locally.
So only a portion comes from thestate.
And also funding for the publicuniversity system.
And then the rest, we can seejustice and public protection.
So think your Department ofSafety, Department of
Corrections, right?
Transportation.
So all the transportationinfrastructure in the state and
(09:36):
the operations of the Departmentof Transportation.
Resource protection development.
So think Department ofEnvironmental Services,
Department of Business andEconomic Affairs.
These entities that exist forspecific purposes that are state
functions.
And then general government,Department of Treasury,
Department of RevenueAdministration, Department of
Administrative Services, Fundfor on organizations like that
that have pretty broad scope.
(09:57):
So, you know, that's all in thestate budget.
But we, the reason the statebudget is one thing, is one
single set of decisions, isbecause it is the collection of
all of those trade-offs as tohow the state government is
going to serve the publicthrough public investment of
public resources.
SPEAKER_01 (10:16):
And those trade-offs can happen every two years.
The budget is a two-year,essentially a two-year document.
And then the cycle repeats everyodd numbered year.
SPEAKER_00 (10:30):
Correct.
What will happen is the stateagencies actually start working
on their budget proposals in thesummer of even-numbered years,
and then the governor will lookat those budget proposals from
the state agencies and puttogether a budget proposal from
the governor that is introducedin February.
SPEAKER_01 (10:49):
So this process is really a full year, essentially,
with the agencies and thedepartments putting together
what they...
They're essentially on theground doing the work, seeing
what needs to happen day to day,and they bring forward a
proposal and say, this is whatwe believe we need.
What do you say to folks whocompare a state budget to a
(11:11):
household budget?
I've heard this comparison made.
There are parts of that that Ilike.
There are parts that don't quitehit the mark.
You as a budget expert, What'sthat comparison like for you?
SPEAKER_00 (11:22):
The comparison to the household budget is
interesting because there arecertain costs that households
have to face.
And there are certain costs thatstates, depending on what
they've agreed to do, forexample, in their state
constitutions, what they'veagreed to do with the people
that they serve and in theirstate laws, that they also have
to incur.
(11:43):
It is somewhat different in thatin a household budget or in a
business budget, you have adifferent array of things in
terms of the services providedand different goals that you may
have, right?
So the set of goals that ahousehold has might be different
than a set of goals that a statehas.
And that could be aroundservices to individuals who have
(12:05):
much more difficulty taking careof themselves, right?
Whether they have some form ofdisability, they have some sort
of structural disadvantage,they've Right.
Those individuals are examplesof how, you know, in a household
budget, you may have an instancewhere a household is
contributing a lot, whether it'sa charitable contribution or is
spending resources, time andmoney on a neighbor who's in
(12:27):
need or a family member who's inneed.
So you could draw some parallelsthere.
On the income side, it's a fairbit different for a household.
It's much harder for a householdto choose their income.
There's still some that can bedone to choose their income, but
it's much harder for a householdto choose their income.
And to choose some of theircosts than it is for a state
government, because a stategovernment can raise more money
(12:50):
if it needs to.
Right.
And they can do that through apolicy change.
That's not that that doesn'thave any effect, but it can do
it through a policy change.
Whereas for a household, it's alittle harder to say here, my
costs are going up and I'm goingto raise my income to meet it.
Some households can do that,right?
You can work longer hours, takeon second and third jobs, and
many households do, but it is adifferent calculus for state
(13:13):
governments.
One contrast that I'll draw iswith the federal government,
because the state government hasto balance its budget.
The federal government does not.
So the state government has tohave revenues and expenditures
match, roughly, and the federalgovernment doesn't have to.
The federal government can run adeficit.
But in both cases, with both thestate government and the federal
government, you're reflectingthe value of a society in the
(13:35):
tasks that you decide toundertake as a government.
You're reflecting what peoplevote for when they vote for
lawmakers, right?
You're reflecting what pastlawmakers have decided is
important and decide toappropriate resources for.
And those public servicecomponents, that's where there's
not as clear a parallel betweena household budget or a business
(13:56):
budget, because it's a differentset of responsibilities.
And again, different ways toraise money to meet those
responsibilities.
SPEAKER_01 (14:03):
You use the words revenues and expenditures.
Very important, I think, in theconversations we're about to
have.
Revenues being the money thatcomes in to the state.
Am I right so far?
Yes.
Am I passing my test so far?
SPEAKER_00 (14:18):
And revenues is expansive too.
It's not just taxes, right?
Like oftentimes people think ofrevenues and think just taxes,
but there's a lot of revenuethat's not taxes.
So just I'll put that caveat in.
But yes, revenues, money cominginto the state from the federal
government, from fees, fromtaxes, from other sources.
SPEAKER_01 (14:34):
And expenditures being how that money is then
spent, right?
by the state where that money isthen going out to some of the
programs you said earlier,whether it's Medicaid, whether
it's the Department ofTransportation, whether it's
education, like that's how themoney is then spent.
Does the state budget show moneyin or does it just show money
(14:56):
out?
SPEAKER_00 (14:57):
The state budget itself as a document in its
purest form, if you will, and Isay purest form because many
things can be attached to thestate budget, but the state
budget itself just shows moneygoing out.
So it includes revenue estimatesfor how much money will be
coming in.
And those are estimates thatpolicymakers make.
But it doesn't show all theinfrastructure associated with
(15:19):
money coming in.
But it does show all of itsexpenditures line by line.
Some of the federal matchingfunds, those will show up as
revenue in the state budget.
But most of the detail in thestate budget is about the
expenditures.
SPEAKER_01 (15:30):
So how...
do lawmakers when they're goingthrough this budget process,
when they're having theirmeetings, when they're debating,
how do they know what revenuesare going to come in in the
future?
They're looking forward for thenext two years, essentially,
when they're doing this process.
How do they know?
I can sort of predict my salaryfor two years, right?
(15:51):
Assuming I keep my job, my wifekeeps her job.
So there are some things, likeyou said, like the household
budget doesn't exactly match upas that metaphor, but those are
things I can sort of predict formyself.
How does the state do it,looking ahead for two years with
such a huge...
process.
SPEAKER_00 (16:09):
So the state looks at the different revenue sources
that it has.
Some of those revenue sourcesare tax revenue sources.
So their legislators,particularly legislators on the
Ways and Means Committees inboth the House and the Senate,
will look at what's the economylooking like, what might tax
revenues associated with, forexample, meals and rentals tax
(16:30):
revenues.
That's when you go out to eatand you pay eight and a half
percent on your restaurant bill,or you stay in a hotel in New
Hampshire and you pay eight anda half percent on that hotel.
How many people are going to begoing to restaurants and using
hotels right so that's a revenuesource a tax revenue source that
they will project they'll say wethink that's going to be three
and a half percent growth in thefirst year and two percent
growth in the second yearbecause you know as far as we
(16:52):
know the the economy's goingpretty well and we think that
people are going to keepvacationing in new hampshire
keep going out to eat and wethink inflation is going to be
about this so that's what we'llthat's what we'll anticipate
SPEAKER_02 (17:01):
okay
SPEAKER_00 (17:02):
the road toll uh or colloquially known as the
gasoline tax but also applies todiesel that is how many people
are driving how Yeah.
(17:38):
So what does that mean?
(18:08):
And then those$2 go to fundhealth services for one of those
roughly 180, 185,000 people inNew Hampshire.
So that's federal money.
That is revenue to the state.
And we're talking like$2.4billion in revenue last fiscal
year, fiscal year 2024, I shouldsay, because we're on the cusp
of fiscal 2026.
By the
SPEAKER_01 (18:27):
time this publishes, it will be two fiscal years ago.
Yeah.
SPEAKER_00 (18:30):
Right.
So I had to ensure that I wasbeing precise here.
You're doing great.
Right.
So there are several differentways that policymakers, when
(18:51):
they're looking at what does thenext two years look like, they
have to consider what theeconomy looks like, how the
economy interacts with the taxrevenue sources, how people's
behavior interacts with otherrevenue sources, and what is the
structure of federal fundingthat's going to flow into the
state.
SPEAKER_01 (19:07):
So they're really pretty much the same thing.
Right.
who want to change policies.
(19:29):
They have to predict how thosefolks might behave and whether
or not they want to fund certainprograms at the same level or at
the level that they predicted.
Phil, how do they do this?
How do they know how much moneyis going to come in on things
like lotto tickets?
That seems like gambling ongambling.
SPEAKER_00 (19:50):
Well, the future is the hardest thing to predict.
So the policymakers who arethinking about who are on the
ways and means can Yeah.
(20:27):
Right.
Right.
You can look at those numbersand say, okay, so there was this
(20:48):
increase in Ohio.
Ohio has these states around itthat do or do not have something
similar.
So what might we expect in NewHampshire?
And do a little bit of math toproject that.
It is complex.
There's always guessworkinvolved.
There's uncertainty.
And usually when there'suncertainty, you might want to
provide a range.
You might say, we're going tocollect from the meals and
rentals tax somewhere between$450 and$500 million each year,
(21:11):
right?
So like, I don't know where itis in that, but we're going to
collect that much.
But when you're building abudget, you need a single
number.
So what the Ways and MeansCommittees do and then the
Finance Committees do whenthey're putting together the
budget totals, they're usingpoint estimate, you could call
it their best guess, but they'reusing those single numbers to
put together their revenueprojections.
And there's inherent risk inthere because there's a lot of
(21:32):
uncertainty, right?
You don't exactly know what'sgoing to happen.
In other states, there are someprocesses that are designed
around sophisticated modeling tosay, all right, what is this
revenue source going to looklike?
How much are we going to bringin in tax revenue?
What is personal income lookinglike?
What are sales looking like?
What's property value doing?
You can do all those things withprojecting tax revenue sources
(21:53):
in more complex fashions.
But we in New Hampshire, we tendto rely on our Ways and Means
Committee members who arelegislators in the House and the
Senate to synthesize all thatinformation and then come up
with a set of numbers that arejust those single point
estimates and use that in thestate budget process.
SPEAKER_01 (22:09):
That is a huge responsibility.
Holy smokes to hear thatresponsibility of the Ways and
Means Committee members.
Oof.
Okay, so we talked about some ofthe revenues and some of the
different ways money comes in.
But sometimes lawmakers changepolicies that remove revenues
pretty recently.
I actually don't know howrecently the policy passed.
(22:30):
You are going to know.
I know it, Phil.
I know you will.
But an example came up when Ispoke with leader Perkins Cuoco
about the interest and dividendstax.
That was a tax that existed.
And then it was eliminated atsome point.
And there was a fake funeralheld by the folks who got What
was that?
(22:50):
She explained it to me, but Iknow, you know, you look at it
from sort of the budget space.
What happened there?
How much did that change?
course of New Hampshire realitywhen it comes to the budget and
revenues.
SPEAKER_00 (23:04):
Yeah.
So the interest and dividendstax was a personal income tax
that New Hampshire had, right?
And it was a tax on not allforms of income, right?
So not wages and salaries, notincome that you earn from
working.
It was a tax on income generatedby wealth, right?
So to pay this tax, you had toown something that generated
(23:29):
money.
money for you that generatedincome for you different from
for example a capital gains taxwould be if you sold something
if you bought something at alower value and sold it at a
higher value like a stock thatwould be a capital gain but
that's that's when you have tosell it this is income generated
from holding a stock and forexample earning dividends or
distributions from it so youhave ownership in a company
(23:51):
right or you have you knowimagine if you had a lot of
savings in a certificate ofdeposit
SPEAKER_01 (23:57):
right i'm gonna try to imagine it phil i'm gonna try
Try to imagine that world, okay?
SPEAKER_00 (24:01):
You had a lot of savings in your certificate of
deposit, enough so that itgenerated more than$2,400 of
income for you that year, youknow, with an interest rate,
right, that was generating thatrevenue for you.
That would then mean that youhad to file, although you're in
a partnership, so you would be,if you're filing jointly, it
would be$4,800.
You would have to file interestand dividends tax back when it
(24:22):
existed because that was thefiling threshold.
If you were 65 or older, if youwere legally blind, if you had
some form of disability thatprevent you from working.
There are other caveats theretoo.
But basically, if you had thatasset that generated more than
$2,400 or for joint filers,$4,800 in income without you
selling it, without you maybeeven touching it, maybe you
(24:44):
manage it and move it from oneinvestment to another.
By it
SPEAKER_01 (24:46):
just existing, by it just being there.
SPEAKER_00 (24:49):
By you owning that amount, then you would pay
interest and dividends tax on itto the state of New Hampshire.
Now, I say the$2,400 in And youmight be thinking, well, that's
not a lot to have in a CD.
But that's not the amount that'sin the CD.
That's the amount that's earnedfrom the CD or that you earn
from owning stock or that youearn from owning a share of a
(25:13):
company that's paid in dividendsand distributions to you.
Basically, a portion of thatcompany's profits that they then
say that we're going to sendthis back to our shareholders.
SPEAKER_01 (25:22):
How much would need to be in a CD to actually have
made$2,400?
by it just sitting there.
SPEAKER_00 (25:30):
So let's consider a 5% annual return on your CD.
And the interest and dividendstax from 1977 to 2022 was a 5%
tax rate.
So those happen to be the samenumber, but that doesn't really
matter.
Easy to remember.
Love
SPEAKER_01 (25:44):
that.
SPEAKER_00 (25:44):
Yes.
Yes.
So if you were paying$1 ininterest and dividends tax, then
that would be 5% of the amountthat you earned in interest and
dividends tax.
So that would be$20.
Okay.
If you earned$20 in taxableincome, and let's back out then
your$2,400 exemption, then you'dhave$48,400 generating that$20
(26:07):
at that 5%, right?
Because your first$2,400 isfree, and then Earning 5%, you
would have at least$48,000-ishthat would be generating that.
Now, there are a lot of peoplewho paid, when it existed, a
relatively small amount ininterest and dividends tax.
But more than half of the incomefrom the interest and dividends
(26:27):
tax the state collected camefrom people filing who had more
than$200,000 in interest anddividend income alone.
Alone.
Alone.
Alone.
So not counting salaries, notcounting wages, not counting
capital gains.
SPEAKER_01 (26:42):
I did not imagine that much money in my imaginary
scenario of myself.
I did not imagine having thatmuch alone just sitting there.
SPEAKER_00 (26:51):
But that's not the $200,000 that's generating the
money.
That's$200,000 that has beengenerated by the wealth.
Phil! Oh,
SPEAKER_01 (27:04):
my God.
SPEAKER_00 (27:05):
Let's do the math.
Say you have a 5% interest rate.
I have a
SPEAKER_01 (27:07):
pencil behind my ear for this very thing.
I'm ready.
Go for it, Phil.
I'm ready for the math.
SPEAKER_00 (27:12):
Let's say you have a 5% return on this.
This may not be a CD at thispoint.
This may be, again, a stockdividend or an annuity or
something like that.
I'm
SPEAKER_01 (27:22):
literally writing it down, Phil.
Yes.
I'm loving it.
Yes.
SPEAKER_00 (27:25):
Okay.
If you are earning orcollecting, because sometimes
economists will call thisunearned income, if you're
collecting passive income of$200,000 or more, then at 5%,
you're talking about$4 millionin assets that are generating
that income.
And 5%, you know, with today'sinterest rate environment, it's
(27:48):
a healthy but not insurmountablereturn, you could get 10%, you
could 12%, then you're talkingabout only more like$2 million,
right, a smaller amount.
But if you're talking about the,you know, average annual return
in terms of dividends anddistributions from like the S&P
500, so let's use numbers from2020, I have those in front of
me, that dividend average was1.5%, which means that if you
(28:10):
had$200,000 or more in taxabledividend income, then you had
probably about$13.4 million inthe S&P 500 average return that
year.
So it's important to rememberthat when we're talking about
the interest and dividends tax,oftentimes we're talking about
how much revenue it's generatedfor the state.
(28:31):
And last fiscal year, that was$184.6 million, right?
It's not nothing.
That's not nothing.
And we can talk about that incontext too.
But more than half of that moneycame from a relatively small
number of filers.
We're talking about, I think,roughly 2,500 filers who
reported more than$200,000 ininterest and dividend income.
So that means that those filerswho are paying more than half of
(28:54):
the revenue collected by theinterest and dividends tax.
This is not more than half thefilers.
There were many more filers.
But it's more than half therevenue collected by the
interest and dividends tax.
Probably had...
millions of dollars in assetsthat were generating that
taxable income.
And again, it's not the whole$200,000 was taxed.
$200,000 in taxable interest anddividend income meant that at a
(29:16):
5% rate, you're talking aboutpaying$10,000 in taxes.
That was a lot of numbers for apodcast, Liz.
I'm sorry.
SPEAKER_01 (29:22):
Phil, my brain has exploded.
Please believe me when I say mymind is boggled.
I wrote things down.
I cannot believe how much moneywe are talking about.
And I say that, Phil, because Ihave heard folks say my family
makes less than$200,000 a year.
I don't want that tax to happen.
(29:44):
It's like that's not you.
It was not impacting you.
Right.
Like you could have savings orstocks or so forth.
But just on your salaries, justhaving jobs that where you and a
spouse together make less than$200,000 a year, and that is the
(30:04):
money that you have, theinterest and dividends tax had
nothing to do with you, if thatis the case.
SPEAKER_00 (30:09):
Right.
If you are just earning moneyfrom a salary and wages, then
the interest and dividends taxis not affecting that.
You have to have wealth thatgenerates income without
yourself telling it.
SPEAKER_03 (30:19):
And
SPEAKER_00 (30:20):
when I say wealth, I mean something that generates
income in a way that I'm nottalking about your house value
going up because the value ofthe houses around you also went
up, right?
I'm talking about wealth that isreally an investable asset.
You own part of a company.
You have loaned someone moneywho's paying you interest.
That it would be taxable underthe interest and dividends tax.
Now, people with low incomes dopay interest and dividends tax
(30:42):
if they have that kind ofincome.
However, that's a question thatcould be addressed with a filing
threshold change, right?
Where people then, okay, If$2,400 or$4,800 for a couple
means that then 5% of the incomeabove that is being taxed in
this interest and dividendsincome, then policymakers could
adjust that filing thresholdbecause it hadn't been adjusted
for us in some time.
It's not automatically adjustedfor inflation or anything like
(31:05):
that.
So that's something thatpolicymakers can adjust and they
have adjusted at filingthresholds for business taxes,
for example.
Most of the revenue, again, themajority of the revenue, comes
in tax payments of$10,000 ormore from individuals and joint
filers who are earning$200,000or more or again collecting
$200,000 or more from the wealthand assets that they own which
(31:30):
is probably Almost has to bemillions of dollars to generate
that sort of income with anysort of reasonable percentage
return on a usual asset.
And again, the state is getting$10,000 of that, if you will,
under the interest and dividendstax or was until January 1st,
2025 when the interest anddividends tax was repealed.
The initial law that repealed itpassed in 2021 as part of that
(31:53):
state budget.
SPEAKER_01 (31:53):
Oh, we've talked about that budget before on this
podcast.
The 2021 budget had a lot ofthings built in, like the
education freedom accounts waspart of that budget as well.
That was when it was firstintroduced.
Oh boy, Phil, it's hard to comeback from all this.
This is a lot.
Why?
Did they cut this tax?
What was the rationale behindgetting rid of it?
(32:14):
Maybe you don't know thatanswer, but this seems like a
big deal to have gotten rid ofthis.
SPEAKER_00 (32:20):
There were three primary rationales offered, and
I'm going to paraphrase here.
Sure.
One was there are individualswho were affected by the
interest and dividends tax whoare– living off the income
associated with the interest anddividends tax.
Think about retirees, people whoare not earning salaries and
wages, which aren't affected bythe interest and dividends tax,
but instead are earning dollarsthrough an annuity or a pension
(32:44):
or something that is taxable.
Now, note that many common typesof retirement investments, such
as individual retirementaccounts, those are not taxable.
So we're talking about a taxthat affected sort of at most
about 10% of the state'spopulation, if you count
everyone that was in theretirees by any stretch, right?
But for people who have certaintypes of investments, then this
(33:06):
would affect their retirementincome.
And if that's the only incomethat they have, then this is a
5% tax on it over that certainlow threshold.
The second rationale offered wasaround attracting investors,
bring investors to NewHampshire, people who are high
wealth individuals who want tocome to New Hampshire and may,
because of their proximity toother opportunities for
investment in New Hampshire, maywant to invest more in New
(33:28):
Hampshire, as opposed to if theylived in a other states that did
tax their interest and dividendincome.
And then the third reason thatwas offered was really more of a
principled reason of we say weare a state without an income
tax, so we should not have anincome tax, right?
And this is an income tax onpersonal income.
So those were the three primaryreasons that were offered in the
(33:48):
public policy discussion.
And I'm paraphrasing, right?
I'm paraphrasing as best I can.
But those were the reasons insummary.
SPEAKER_01 (33:55):
But We can say we don't have a sales tax, but we
do have a tax on our meals,right?
For when we buy something, thatis a tax on the sale of meals?
SPEAKER_00 (34:08):
When we buy meals, when we buy houses, when we buy
tobacco, right?
Tobacco products or cigarettes.
But yes, we do have taxes ontransactions that are sales,
right?
SPEAKER_01 (34:22):
We don't have any sales tax.
We have transaction taxes.
SPEAKER_00 (34:27):
I see.
When you buy a house, both thebuyer and the seller...
Right.
(35:01):
But that
SPEAKER_01 (35:04):
same argument with interest and dividends taxes,
it's not a broad-based incometax because it's only select
group and small amount.
Mind-boggling.
So revenues have changed.
Have there been other changes?
SPEAKER_00 (35:18):
Yeah, so the interest and dividends tax
repeal was the one that had thelargest impact on this state
budget specifically, right?
Because we're going into thefirst state budget where we
haven't had the interest anddividends tax.
First in a very long timebecause the tax was established
back in 1923.
Wait,
SPEAKER_01 (35:35):
1923?
SPEAKER_00 (35:38):
Yes.
SPEAKER_01 (35:39):
Oh my God, Phil.
So 102 years...
Am I doing my math correct onjust the years?
Yes,
SPEAKER_00 (35:47):
you are doing the math correct on just the years.
And I just checked to make sure.
1923.
It was established in 1923.
And again, it was 4% from 1923to 1977 when it was increased to
5%.
And then it was 5% from 1977 to22 when it started phasing out
as part of the 2021 statebudget.
(36:07):
And the 2023 state budgetaccelerated the phase out.
SPEAKER_01 (36:10):
Okay, so no one has been around for a New Hampshire
state budget without thatrevenue in some capacity coming
in until right now.
SPEAKER_00 (36:21):
They certainly haven't been a policymaker
because presumably they werevery, very young in the late
teens and early 20s.
Well, we know
SPEAKER_01 (36:26):
what the average age is over at the statehouse, so
it's close, but not quite.
So that has happened from 1923until this year, and now it's
gone.
That's a big one.
SPEAKER_00 (36:36):
It's the largest one.
There have been some otherchanges as well.
This year, we've seen businesstax revenues be lower than they
have been in immediately prioryears.
Indeed, for a lot of statefiscal year 2025, state revenues
from business taxes were downbetween 15% and 20%, depending
on which month you looked at.
(36:57):
And to put that in context, thebusiness profits tax is the
largest tax revenue source thestate has by a factor of two.
is twice as large as the secondlargest state tax revenue
source, which is the meals andrentals tax.
And the business enterprise taxis typically in the top four or
five.
And those two business taxessort of work together as the
(37:18):
state's corporate tax structurein New Hampshire.
So that is our most importanttax revenue source.
I should say also that is rareamong states.
We are the state that relies oncorporate tax revenue more than
any other state.
It's about 36% of our taxrevenue in New Hampshire comes
from corporate taxes thebusiness profits and business
enterprise taxes.
And we are the only state wherethat is our largest source of
(37:41):
revenue, unless you, well, Iwon't even get into that.
But New Hampshire is the statethat relies on business tax
revenues more than any otherstate.
It was 36% of the tax revenuecame from business profits and
business enterprise tax revenuescombined.
So it's a really important taxrevenue source for the state of
New Hampshire.
(38:01):
So those tax revenues being downby 15 to 20% is something
something that policymakers sawand we saw at NHFPI for a little
bit more than a year.
This is something that we'vebeen expecting and that was a
trend that started back in thefirst year of the state budget
that just finished.
That is something that is verydifferent from what we saw for
(38:21):
really the last four budgetcycles before that.
Because over the last fourbudget cycles before this most
recent one, revenues had beengoing up sometimes in surprising
fashions for a variety ofreasons, but those revenue
increases are not something thathas been sustained and And those
have been driven largely by thebusiness profits tax and the
real estate transfer tax.
And both of those haveatrophied, right?
(38:43):
Both of those have gone down interms of the amount of revenue
they've collected.
And that's something that we sawgoing into this budget cycle at
the same time that the interestand dividends tax was being
repealed, that liquor commissionrevenues were not very strong.
Meals and rentals tax revenueshave been doing fine, but
nothing super profound.
So we're going into a fiscallyconstrained environment in that
there's less revenue coming in.
(39:04):
Over the long term...
Oh, sorry.
Go ahead, Liz.
SPEAKER_01 (39:06):
No, go ahead.
I'm just deep sighing over here.
I'm good.
I'm good.
Quote, unquote, I'm good.
SPEAKER_00 (39:13):
There have been policy changes that have likely
affected that business taxrevenue.
But one thing that is clearlylowering our revenue is that
since 2015, there have been aseries of rate reductions for
the business profits tax rateand the business enterprise tax
rate.
And that over that time periodfrom 2015 to 2024, so the first
rate reduction was in 2016,there were incremental rate
(39:33):
reductions.
that has probably cost the stateabout a billion dollars in
revenue, between almost about800 million and almost 1.2
billion.
So that's a lot of revenue thestate didn't collect that it
could have collected over thattime period.
And those revenues, as a result,if you look year over year, then
(39:55):
we're talking about roughly 190or 200 million dollars in
revenue a year from the businesstaxes currently, or in tax year
2024, that if the tax rates hadbeen at 2015 levels would have
been collected by the state.
By the way, it is adjusted forpotential economic effects from
having those business tax rateslowered.
So there has been somediscussion in the past about
(40:17):
lowering business tax ratesbrings in more growth, brings in
more revenue.
Its effects, at least in the NewHampshire-based data and in some
of the national research, theeffects on the economy are not
very clear.
There's a lot of nationalresearch that makes a wide
variety of conclusions, but noneof them suggest that we would
have collected more revenuebecause of lowering the
(40:38):
corporate tax rate in NewHampshire.
And as a result, we've lostrevenue.
And those estimates that I gaveyou account for some of that
economic uncertainty as to howmuch could have been earned
back, if you will, by highereconomic growth because of those
lower tax rates.
SPEAKER_01 (40:53):
Let me try to do a quick and snappy recap.
Cut a tax that was for superwealthy folks on wealth that has
generated a lot of money forfolks who have a lot of money
sitting in a CD or stocks orsomething like that.
Got rid of that a few years ago.
Yes, so far.
SPEAKER_00 (41:12):
Yes.
I hope so.
Yes.
Thank God.
Well, I should say itdisappeared in 2025.
So this is the first year thatwe have nothing whatsoever.
Because it
SPEAKER_01 (41:19):
had been phased out.
And now it's gone.
So it's gone for this nextfiscal year.
For the first time, no interestand dividends tax since 1922.
Other taxes have beenintentionally decreased.
SPEAKER_00 (41:32):
Yes.
Business profit tax, businessenterprise tax, meals and
rentals tax also went down ahalf a percent as well in the
2021 budget.
SPEAKER_01 (41:40):
Which state lawmakers, those are the folks
who make those decisions, arethe folks in the statehouse.
Yes.
And then we also have to beaware of variables happening now
where tourism may be affectedby...
how folks are feeling about howmuch money they actually have
(42:00):
for travel.
And so that could impact themoney in New Hampshire as well.
SPEAKER_00 (42:06):
Yes.
SPEAKER_01 (42:07):
Okay.
So we also have what money isbeing spent in the state.
So we have all of these cutsintentionally.
This wasn't magic that thishappened.
SPEAKER_00 (42:20):
No, none of this is magic.
SPEAKER_01 (42:23):
There is no magic in the state budget.
What other big debates happenedin the state budget?
And I know we're way over time,Phil.
So if you need to go, I totallyunderstand as well.
SPEAKER_00 (42:46):
Yeah, I'll probably need to go around six, but it's
my fault that we're way over
SPEAKER_01 (42:50):
time.
You're doing great.
All of this is so good.
It's all so good.
SPEAKER_00 (42:52):
Okay, good.
I'm glad it's good content.
And I'm probably giving you alot to edit.
So my apologies.
I
SPEAKER_01 (42:57):
love it.
I will do a two-parter if I needto.
This is the last day of June, so nearly happy new
state fiscal year, everyone.
We're getting to July 1st.
It's happening.
It's sometimes happy for somefolks, not happy for others, but
it is a new state fiscal year.
We'll finally enter state fiscalyear 2026.
SPEAKER_01 (00:16):
Phil, we are recording on state fiscal year
eve.
And I myself will be leavingmilk and cookies out for you
because I'm assuming you goaround and bring the good news
of all things state budget,which is why I'm having you on
the show.
It's a big time for all thelawmakers, for you as well.
SPEAKER_00 (00:35):
For someone who is going around on the new state
fiscal year eve, there is alittle bit of a benefit because
some states don't have a July1st state fiscal year.
So you don't have to cover thewhole country all at once.
But if you need to do it atnighttime This is not a good
time of year for that, right?
It's great if you can do itduring the day, but we don't
have very, in the NorthernHemisphere, we don't have very
(00:57):
many nighttime hours here.
So I would like to fulfill thatwish for you, but that's a lot
of households to get to in theshort nighttimes that we have,
you know, June 30th to July 1st.
SPEAKER_01 (01:09):
I believe in your magic.
I believe in you, Phil.
I have no doubt that you willget it all done for us in this
one night of the year.
UNKNOWN (01:20):
Music
SPEAKER_01 (01:28):
Welcome to New Hampshire Has Issues, a podcast
that dares to ask, can we make aconversation about the state
budget super interesting?
SPEAKER_00 (01:40):
We're going to try, Liz.
I try to do that most days of myjob.
SPEAKER_01 (01:44):
That is your full-time job.
Do you have a tagline for me,Phil?
What do you think?
SPEAKER_00 (01:49):
New Hampshire Has Issues, the podcast that dares
to ask, New Hampshire is a greatstate.
How could we make it better?
SPEAKER_01 (01:56):
Oh, that's like an optimistic spin on the whole
concept.
I love
SPEAKER_00 (02:02):
that.
(02:26):
most legislators do in anytwo-year term that they vote on
in terms of investment is thestate budget.
I mean, this state budget is$15.9 billion over two years.
That's a lot of public resourcethat we are investing in
ourselves in one way or another.
And I think this podcast is agreat venue for asking, how are
we investing in ourselves,right?
(02:46):
If New Hampshire has issues,because there are a lot of
issues to deal with, if NewHampshire has issues, how can we
make the state better throughour own collective fiscal policy
choices?
SPEAKER_01 (02:56):
Phil, you you just summed it all up so beautifully.
A-plus work, as always.
My guest today is Phil Slutton.
He is the Research Director atthe New Hampshire Fiscal Policy
Institute.
Phil, welcome to the show.
I am so happy that you are here.
SPEAKER_00 (03:13):
Thank you, Liz.
It's great to be here.
Thanks for having me on theshow.
SPEAKER_01 (03:15):
Of course.
There is Literally no one onplanet Earth I would rather have
on this show talking about thestate budget.
And I'm not even going toapologize to everybody else on
planet Earth because, Phil, youare the expert on this topic.
You've come up on the podcastbefore.
You came up in the child careepisode with Kenz Nicholson
(03:37):
where, you know, gave you ashout out for the work that New
Hampshire Fiscal PolicyInstitute does.
But I brought up a moment whereI had sent you an email with a
question.
And you responded within fourminutes.
I don't know if you rememberthat, Phil.
SPEAKER_00 (03:50):
I do remember this, yes.
I was lucky to be that close tomy email at that particular
time.
And that was a question I had aclear answer to.
And that does not always happen,unfortunately, with emails.
SPEAKER_01 (04:01):
Okay.
All right, so let's start with asimple question, okay?
The simple question, Phil, isare you a robot?
How do you know so much aboutthe state budget?
How do you do it?
SPEAKER_00 (04:10):
Well, one of the things that I think is important
to remember is that when we arethinking about what our
legislators are working on, whenwe're thinking about what
advocates are working on,thinking about what journalists
are working on, thinking aboutwhat people are working on in
and around the state budget,lobbyists, community leaders,
people who are thinking abouthow the state is funding their
(04:32):
town, they're on the schoolboard or they're on the select
board or a city councilor, theyhave a whole constellation of
things they have to think about,right?
They have to think about, youknow, what's going on relative
to the state budget and alsowith our legislators, maybe the
job that they have, right?
Or what's happening in the othercommittees or what's happening
(04:53):
in their town or what'shappening in their family or
what's happening on the otherbills they may be following.
At the New Hampshire FiscalPolicy Institute.
track a lot of material.
But because of the name, youheard the name fiscal policy
right in there, New Hampshirefiscal policy.
And the biggest piece of NewHampshire fiscal policy is the
state budget.
So we take and I say we becauseit is not just me, there's a
(05:15):
team of now eight of us here atNHFPI.
Yes, it's fantastic.
There were times when there werejust two of us.
SPEAKER_01 (05:23):
I remember those times.
Yeah,
SPEAKER_00 (05:24):
right.
So now with eight of us, I mean,the example that you just gave
about the four minute reply, Iwas able to reply to you in four
minutes, But it was a piece ofresearch that senior policy
analyst Nicole Heller had puttogether.
I just happened to know where itwas, right?
So it is a team effort to knowthe state budget as well as we
do here at NHFPI.
And it is a cornerstone of ourwork.
(05:45):
It is a key part of our work tounderstand what's in the state
budget and explain it for folks,unpack it for folks, because
we're talking about you know, athousand pages.
Most of them are just lines ofnumbers next to standardized
names that don't really describewhat it does, right?
They don't really describewhat's happening.
And then 200 pages of text,depending on what's in the
trailer bill, right?
(06:06):
In the length of the trailerbill.
So there's a lot to sortthrough.
And everyone is affected by thestate budget.
All those folks I listed, youknow, they all are busy.
But we keep ourselves very busywith the state budget.
And that means that we can be aresource for everyone else who
wants to know about the statebudget.
They don't have to learn all thenitty gritty details.
(06:28):
We can and we can unpack themand explain them.
So we don't have to be robotsbecause we've devoted the time
to this because it is thebiggest piece of New Hampshire
fiscal policy that happens.
And that's what we're here to doat the New Hampshire Fiscal
Policy Institute.
SPEAKER_01 (06:41):
I heard you not say yes or no on the robot question.
So I'm just going to say it'sstill maybe.
SPEAKER_00 (06:45):
If I'm a robot, I don't know, right?
Welcome to Westworld, folks.
That happens in science fiction,right?
But as far as I know, I am So
SPEAKER_01 (06:54):
state budget, that phrase, is not like the most
exciting thing ever.
And I'm someone who actuallywatches these meetings.
I read the reports andeverything.
What would be the best way todescribe what a state budget is
to you?
the vast majority of people whoare not paying attention.
SPEAKER_00 (07:15):
So the state budget is how we decide where to
allocate public resources at thestate level.
What do we spend money on?
How do we raise that money?
How do we organize thatspending?
(07:55):
The fun parts of the statebudget, I say fun somewhat
facetiously in that not allstate spending is actually in
the state budget.
It's not that simple that youcan look at the state budget and
see everything the state does.
Okay.
(08:24):
About two-thirds of it arehealth services and education
(08:45):
services.
that health and social servicespart of the pie.
And then another quarter,roughly, is education.
And education includes fundingfor local public education, at
least the funding that comesfrom the state, which, as
(09:07):
listeners to your podcast know,is only a portion of the total
funding that is used by localpublic education.
SPEAKER_01 (09:14):
Shout out to the Zach Sheehan episode.
SPEAKER_00 (09:16):
70% of local public education is funded by property
taxes that are raised locally.
So only a portion comes from thestate.
And also funding for the publicuniversity system.
And then the rest, we can seejustice and public protection.
So think your Department ofSafety, Department of
Corrections, right?
Transportation.
So all the transportationinfrastructure in the state and
(09:36):
the operations of the Departmentof Transportation.
Resource protection development.
So think Department ofEnvironmental Services,
Department of Business andEconomic Affairs.
These entities that exist forspecific purposes that are state
functions.
And then general government,Department of Treasury,
Department of RevenueAdministration, Department of
Administrative Services, Fundfor on organizations like that
that have pretty broad scope.
(09:57):
So, you know, that's all in thestate budget.
But we, the reason the statebudget is one thing, is one
single set of decisions, isbecause it is the collection of
all of those trade-offs as tohow the state government is
going to serve the publicthrough public investment of
public resources.
SPEAKER_01 (10:16):
And those trade-offs can happen every two years.
The budget is a two-year,essentially a two-year document.
And then the cycle repeats everyodd numbered year.
SPEAKER_00 (10:30):
Correct.
What will happen is the stateagencies actually start working
on their budget proposals in thesummer of even-numbered years,
and then the governor will lookat those budget proposals from
the state agencies and puttogether a budget proposal from
the governor that is introducedin February.
SPEAKER_01 (10:49):
So this process is really a full year, essentially,
with the agencies and thedepartments putting together
what they...
They're essentially on theground doing the work, seeing
what needs to happen day to day,and they bring forward a
proposal and say, this is whatwe believe we need.
What do you say to folks whocompare a state budget to a
(11:11):
household budget?
I've heard this comparison made.
There are parts of that that Ilike.
There are parts that don't quitehit the mark.
You as a budget expert, What'sthat comparison like for you?
SPEAKER_00 (11:22):
The comparison to the household budget is
interesting because there arecertain costs that households
have to face.
And there are certain costs thatstates, depending on what
they've agreed to do, forexample, in their state
constitutions, what they'veagreed to do with the people
that they serve and in theirstate laws, that they also have
to incur.
(11:43):
It is somewhat different in thatin a household budget or in a
business budget, you have adifferent array of things in
terms of the services providedand different goals that you may
have, right?
So the set of goals that ahousehold has might be different
than a set of goals that a statehas.
And that could be aroundservices to individuals who have
(12:05):
much more difficulty taking careof themselves, right?
Whether they have some form ofdisability, they have some sort
of structural disadvantage,they've Right.
Those individuals are examplesof how, you know, in a household
budget, you may have an instancewhere a household is
contributing a lot, whether it'sa charitable contribution or is
spending resources, time andmoney on a neighbor who's in
(12:27):
need or a family member who's inneed.
So you could draw some parallelsthere.
On the income side, it's a fairbit different for a household.
It's much harder for a householdto choose their income.
There's still some that can bedone to choose their income, but
it's much harder for a householdto choose their income.
And to choose some of theircosts than it is for a state
government, because a stategovernment can raise more money
(12:50):
if it needs to.
Right.
And they can do that through apolicy change.
That's not that that doesn'thave any effect, but it can do
it through a policy change.
Whereas for a household, it's alittle harder to say here, my
costs are going up and I'm goingto raise my income to meet it.
Some households can do that,right?
You can work longer hours, takeon second and third jobs, and
many households do, but it is adifferent calculus for state
(13:13):
governments.
One contrast that I'll draw iswith the federal government,
because the state government hasto balance its budget.
The federal government does not.
So the state government has tohave revenues and expenditures
match, roughly, and the federalgovernment doesn't have to.
The federal government can run adeficit.
But in both cases, with both thestate government and the federal
government, you're reflectingthe value of a society in the
(13:35):
tasks that you decide toundertake as a government.
You're reflecting what peoplevote for when they vote for
lawmakers, right?
You're reflecting what pastlawmakers have decided is
important and decide toappropriate resources for.
And those public servicecomponents, that's where there's
not as clear a parallel betweena household budget or a business
(13:56):
budget, because it's a differentset of responsibilities.
And again, different ways toraise money to meet those
responsibilities.
SPEAKER_01 (14:03):
You use the words revenues and expenditures.
Very important, I think, in theconversations we're about to
have.
Revenues being the money thatcomes in to the state.
Am I right so far?
Yes.
Am I passing my test so far?
SPEAKER_00 (14:18):
And revenues is expansive too.
It's not just taxes, right?
Like oftentimes people think ofrevenues and think just taxes,
but there's a lot of revenuethat's not taxes.
So just I'll put that caveat in.
But yes, revenues, money cominginto the state from the federal
government, from fees, fromtaxes, from other sources.
SPEAKER_01 (14:34):
And expenditures being how that money is then
spent, right?
by the state where that money isthen going out to some of the
programs you said earlier,whether it's Medicaid, whether
it's the Department ofTransportation, whether it's
education, like that's how themoney is then spent.
Does the state budget show moneyin or does it just show money
(14:56):
out?
SPEAKER_00 (14:57):
The state budget itself as a document in its
purest form, if you will, and Isay purest form because many
things can be attached to thestate budget, but the state
budget itself just shows moneygoing out.
So it includes revenue estimatesfor how much money will be
coming in.
And those are estimates thatpolicymakers make.
But it doesn't show all theinfrastructure associated with
(15:19):
money coming in.
But it does show all of itsexpenditures line by line.
Some of the federal matchingfunds, those will show up as
revenue in the state budget.
But most of the detail in thestate budget is about the
expenditures.
SPEAKER_01 (15:30):
So how...
do lawmakers when they're goingthrough this budget process,
when they're having theirmeetings, when they're debating,
how do they know what revenuesare going to come in in the
future?
They're looking forward for thenext two years, essentially,
when they're doing this process.
How do they know?
I can sort of predict my salaryfor two years, right?
(15:51):
Assuming I keep my job, my wifekeeps her job.
So there are some things, likeyou said, like the household
budget doesn't exactly match upas that metaphor, but those are
things I can sort of predict formyself.
How does the state do it,looking ahead for two years with
such a huge...
process.
SPEAKER_00 (16:09):
So the state looks at the different revenue sources
that it has.
Some of those revenue sourcesare tax revenue sources.
So their legislators,particularly legislators on the
Ways and Means Committees inboth the House and the Senate,
will look at what's the economylooking like, what might tax
revenues associated with, forexample, meals and rentals tax
(16:30):
revenues.
That's when you go out to eatand you pay eight and a half
percent on your restaurant bill,or you stay in a hotel in New
Hampshire and you pay eight anda half percent on that hotel.
How many people are going to begoing to restaurants and using
hotels right so that's a revenuesource a tax revenue source that
they will project they'll say wethink that's going to be three
and a half percent growth in thefirst year and two percent
growth in the second yearbecause you know as far as we
(16:52):
know the the economy's goingpretty well and we think that
people are going to keepvacationing in new hampshire
keep going out to eat and wethink inflation is going to be
about this so that's what we'llthat's what we'll anticipate
SPEAKER_02 (17:01):
okay
SPEAKER_00 (17:02):
the road toll uh or colloquially known as the
gasoline tax but also applies todiesel that is how many people
are driving how Yeah.
(17:38):
So what does that mean?
(18:08):
And then those$2 go to fundhealth services for one of those
roughly 180, 185,000 people inNew Hampshire.
So that's federal money.
That is revenue to the state.
And we're talking like$2.4billion in revenue last fiscal
year, fiscal year 2024, I shouldsay, because we're on the cusp
of fiscal 2026.
By the
SPEAKER_01 (18:27):
time this publishes, it will be two fiscal years ago.
Yeah.
SPEAKER_00 (18:30):
Right.
So I had to ensure that I wasbeing precise here.
You're doing great.
Right.
So there are several differentways that policymakers, when
(18:51):
they're looking at what does thenext two years look like, they
have to consider what theeconomy looks like, how the
economy interacts with the taxrevenue sources, how people's
behavior interacts with otherrevenue sources, and what is the
structure of federal fundingthat's going to flow into the
state.
SPEAKER_01 (19:07):
So they're really pretty much the same thing.
Right.
who want to change policies.
(19:29):
They have to predict how thosefolks might behave and whether
or not they want to fund certainprograms at the same level or at
the level that they predicted.
Phil, how do they do this?
How do they know how much moneyis going to come in on things
like lotto tickets?
That seems like gambling ongambling.
SPEAKER_00 (19:50):
Well, the future is the hardest thing to predict.
So the policymakers who arethinking about who are on the
ways and means can Yeah.
(20:27):
Right.
Right.
You can look at those numbersand say, okay, so there was this
(20:48):
increase in Ohio.
Ohio has these states around itthat do or do not have something
similar.
So what might we expect in NewHampshire?
And do a little bit of math toproject that.
It is complex.
There's always guessworkinvolved.
There's uncertainty.
And usually when there'suncertainty, you might want to
provide a range.
You might say, we're going tocollect from the meals and
rentals tax somewhere between$450 and$500 million each year,
(21:11):
right?
So like, I don't know where itis in that, but we're going to
collect that much.
But when you're building abudget, you need a single
number.
So what the Ways and MeansCommittees do and then the
Finance Committees do whenthey're putting together the
budget totals, they're usingpoint estimate, you could call
it their best guess, but they'reusing those single numbers to
put together their revenueprojections.
And there's inherent risk inthere because there's a lot of
(21:32):
uncertainty, right?
You don't exactly know what'sgoing to happen.
In other states, there are someprocesses that are designed
around sophisticated modeling tosay, all right, what is this
revenue source going to looklike?
How much are we going to bringin in tax revenue?
What is personal income lookinglike?
What are sales looking like?
What's property value doing?
You can do all those things withprojecting tax revenue sources
(21:53):
in more complex fashions.
But we in New Hampshire, we tendto rely on our Ways and Means
Committee members who arelegislators in the House and the
Senate to synthesize all thatinformation and then come up
with a set of numbers that arejust those single point
estimates and use that in thestate budget process.
SPEAKER_01 (22:09):
That is a huge responsibility.
Holy smokes to hear thatresponsibility of the Ways and
Means Committee members.
Oof.
Okay, so we talked about some ofthe revenues and some of the
different ways money comes in.
But sometimes lawmakers changepolicies that remove revenues
pretty recently.
I actually don't know howrecently the policy passed.
(22:30):
You are going to know.
I know it, Phil.
I know you will.
But an example came up when Ispoke with leader Perkins Cuoco
about the interest and dividendstax.
That was a tax that existed.
And then it was eliminated atsome point.
And there was a fake funeralheld by the folks who got What
was that?
(22:50):
She explained it to me, but Iknow, you know, you look at it
from sort of the budget space.
What happened there?
How much did that change?
course of New Hampshire realitywhen it comes to the budget and
revenues.
SPEAKER_00 (23:04):
Yeah.
So the interest and dividendstax was a personal income tax
that New Hampshire had, right?
And it was a tax on not allforms of income, right?
So not wages and salaries, notincome that you earn from
working.
It was a tax on income generatedby wealth, right?
So to pay this tax, you had toown something that generated
(23:29):
money.
money for you that generatedincome for you different from
for example a capital gains taxwould be if you sold something
if you bought something at alower value and sold it at a
higher value like a stock thatwould be a capital gain but
that's that's when you have tosell it this is income generated
from holding a stock and forexample earning dividends or
distributions from it so youhave ownership in a company
(23:51):
right or you have you knowimagine if you had a lot of
savings in a certificate ofdeposit
SPEAKER_01 (23:57):
right i'm gonna try to imagine it phil i'm gonna try
Try to imagine that world, okay?
SPEAKER_00 (24:01):
You had a lot of savings in your certificate of
deposit, enough so that itgenerated more than$2,400 of
income for you that year, youknow, with an interest rate,
right, that was generating thatrevenue for you.
That would then mean that youhad to file, although you're in
a partnership, so you would be,if you're filing jointly, it
would be$4,800.
You would have to file interestand dividends tax back when it
(24:22):
existed because that was thefiling threshold.
If you were 65 or older, if youwere legally blind, if you had
some form of disability thatprevent you from working.
There are other caveats theretoo.
But basically, if you had thatasset that generated more than
$2,400 or for joint filers,$4,800 in income without you
selling it, without you maybeeven touching it, maybe you
(24:44):
manage it and move it from oneinvestment to another.
By it
SPEAKER_01 (24:46):
just existing, by it just being there.
SPEAKER_00 (24:49):
By you owning that amount, then you would pay
interest and dividends tax on itto the state of New Hampshire.
Now, I say the$2,400 in And youmight be thinking, well, that's
not a lot to have in a CD.
But that's not the amount that'sin the CD.
That's the amount that's earnedfrom the CD or that you earn
from owning stock or that youearn from owning a share of a
(25:13):
company that's paid in dividendsand distributions to you.
Basically, a portion of thatcompany's profits that they then
say that we're going to sendthis back to our shareholders.
SPEAKER_01 (25:22):
How much would need to be in a CD to actually have
made$2,400?
by it just sitting there.
SPEAKER_00 (25:30):
So let's consider a 5% annual return on your CD.
And the interest and dividendstax from 1977 to 2022 was a 5%
tax rate.
So those happen to be the samenumber, but that doesn't really
matter.
Easy to remember.
Love
SPEAKER_01 (25:44):
that.
SPEAKER_00 (25:44):
Yes.
Yes.
So if you were paying$1 ininterest and dividends tax, then
that would be 5% of the amountthat you earned in interest and
dividends tax.
So that would be$20.
Okay.
If you earned$20 in taxableincome, and let's back out then
your$2,400 exemption, then you'dhave$48,400 generating that$20
(26:07):
at that 5%, right?
Because your first$2,400 isfree, and then Earning 5%, you
would have at least$48,000-ishthat would be generating that.
Now, there are a lot of peoplewho paid, when it existed, a
relatively small amount ininterest and dividends tax.
But more than half of the incomefrom the interest and dividends
(26:27):
tax the state collected camefrom people filing who had more
than$200,000 in interest anddividend income alone.
Alone.
Alone.
Alone.
So not counting salaries, notcounting wages, not counting
capital gains.
SPEAKER_01 (26:42):
I did not imagine that much money in my imaginary
scenario of myself.
I did not imagine having thatmuch alone just sitting there.
SPEAKER_00 (26:51):
But that's not the $200,000 that's generating the
money.
That's$200,000 that has beengenerated by the wealth.
Phil! Oh,
SPEAKER_01 (27:04):
my God.
SPEAKER_00 (27:05):
Let's do the math.
Say you have a 5% interest rate.
I have a
SPEAKER_01 (27:07):
pencil behind my ear for this very thing.
I'm ready.
Go for it, Phil.
I'm ready for the math.
SPEAKER_00 (27:12):
Let's say you have a 5% return on this.
This may not be a CD at thispoint.
This may be, again, a stockdividend or an annuity or
something like that.
I'm
SPEAKER_01 (27:22):
literally writing it down, Phil.
Yes.
I'm loving it.
Yes.
SPEAKER_00 (27:25):
Okay.
If you are earning orcollecting, because sometimes
economists will call thisunearned income, if you're
collecting passive income of$200,000 or more, then at 5%,
you're talking about$4 millionin assets that are generating
that income.
And 5%, you know, with today'sinterest rate environment, it's
(27:48):
a healthy but not insurmountablereturn, you could get 10%, you
could 12%, then you're talkingabout only more like$2 million,
right, a smaller amount.
But if you're talking about the,you know, average annual return
in terms of dividends anddistributions from like the S&P
500, so let's use numbers from2020, I have those in front of
me, that dividend average was1.5%, which means that if you
(28:10):
had$200,000 or more in taxabledividend income, then you had
probably about$13.4 million inthe S&P 500 average return that
year.
So it's important to rememberthat when we're talking about
the interest and dividends tax,oftentimes we're talking about
how much revenue it's generatedfor the state.
(28:31):
And last fiscal year, that was$184.6 million, right?
It's not nothing.
That's not nothing.
And we can talk about that incontext too.
But more than half of that moneycame from a relatively small
number of filers.
We're talking about, I think,roughly 2,500 filers who
reported more than$200,000 ininterest and dividend income.
So that means that those filerswho are paying more than half of
(28:54):
the revenue collected by theinterest and dividends tax.
This is not more than half thefilers.
There were many more filers.
But it's more than half therevenue collected by the
interest and dividends tax.
Probably had...
millions of dollars in assetsthat were generating that
taxable income.
And again, it's not the whole$200,000 was taxed.
$200,000 in taxable interest anddividend income meant that at a
(29:16):
5% rate, you're talking aboutpaying$10,000 in taxes.
That was a lot of numbers for apodcast, Liz.
I'm sorry.
SPEAKER_01 (29:22):
Phil, my brain has exploded.
Please believe me when I say mymind is boggled.
I wrote things down.
I cannot believe how much moneywe are talking about.
And I say that, Phil, because Ihave heard folks say my family
makes less than$200,000 a year.
I don't want that tax to happen.
(29:44):
It's like that's not you.
It was not impacting you.
Right.
Like you could have savings orstocks or so forth.
But just on your salaries, justhaving jobs that where you and a
spouse together make less than$200,000 a year, and that is the
(30:04):
money that you have, theinterest and dividends tax had
nothing to do with you, if thatis the case.
SPEAKER_00 (30:09):
Right.
If you are just earning moneyfrom a salary and wages, then
the interest and dividends taxis not affecting that.
You have to have wealth thatgenerates income without
yourself telling it.
SPEAKER_03 (30:19):
And
SPEAKER_00 (30:20):
when I say wealth, I mean something that generates
income in a way that I'm nottalking about your house value
going up because the value ofthe houses around you also went
up, right?
I'm talking about wealth that isreally an investable asset.
You own part of a company.
You have loaned someone moneywho's paying you interest.
That it would be taxable underthe interest and dividends tax.
Now, people with low incomes dopay interest and dividends tax
(30:42):
if they have that kind ofincome.
However, that's a question thatcould be addressed with a filing
threshold change, right?
Where people then, okay, If$2,400 or$4,800 for a couple
means that then 5% of the incomeabove that is being taxed in
this interest and dividendsincome, then policymakers could
adjust that filing thresholdbecause it hadn't been adjusted
for us in some time.
It's not automatically adjustedfor inflation or anything like
(31:05):
that.
So that's something thatpolicymakers can adjust and they
have adjusted at filingthresholds for business taxes,
for example.
Most of the revenue, again, themajority of the revenue, comes
in tax payments of$10,000 ormore from individuals and joint
filers who are earning$200,000or more or again collecting
$200,000 or more from the wealthand assets that they own which
(31:30):
is probably Almost has to bemillions of dollars to generate
that sort of income with anysort of reasonable percentage
return on a usual asset.
And again, the state is getting$10,000 of that, if you will,
under the interest and dividendstax or was until January 1st,
2025 when the interest anddividends tax was repealed.
The initial law that repealed itpassed in 2021 as part of that
(31:53):
state budget.
SPEAKER_01 (31:53):
Oh, we've talked about that budget before on this
podcast.
The 2021 budget had a lot ofthings built in, like the
education freedom accounts waspart of that budget as well.
That was when it was firstintroduced.
Oh boy, Phil, it's hard to comeback from all this.
This is a lot.
Why?
Did they cut this tax?
What was the rationale behindgetting rid of it?
(32:14):
Maybe you don't know thatanswer, but this seems like a
big deal to have gotten rid ofthis.
SPEAKER_00 (32:20):
There were three primary rationales offered, and
I'm going to paraphrase here.
Sure.
One was there are individualswho were affected by the
interest and dividends tax whoare– living off the income
associated with the interest anddividends tax.
Think about retirees, people whoare not earning salaries and
wages, which aren't affected bythe interest and dividends tax,
but instead are earning dollarsthrough an annuity or a pension
(32:44):
or something that is taxable.
Now, note that many common typesof retirement investments, such
as individual retirementaccounts, those are not taxable.
So we're talking about a taxthat affected sort of at most
about 10% of the state'spopulation, if you count
everyone that was in theretirees by any stretch, right?
But for people who have certaintypes of investments, then this
(33:06):
would affect their retirementincome.
And if that's the only incomethat they have, then this is a
5% tax on it over that certainlow threshold.
The second rationale offered wasaround attracting investors,
bring investors to NewHampshire, people who are high
wealth individuals who want tocome to New Hampshire and may,
because of their proximity toother opportunities for
investment in New Hampshire, maywant to invest more in New
(33:28):
Hampshire, as opposed to if theylived in a other states that did
tax their interest and dividendincome.
And then the third reason thatwas offered was really more of a
principled reason of we say weare a state without an income
tax, so we should not have anincome tax, right?
And this is an income tax onpersonal income.
So those were the three primaryreasons that were offered in the
(33:48):
public policy discussion.
And I'm paraphrasing, right?
I'm paraphrasing as best I can.
But those were the reasons insummary.
SPEAKER_01 (33:55):
But We can say we don't have a sales tax, but we
do have a tax on our meals,right?
For when we buy something, thatis a tax on the sale of meals?
SPEAKER_00 (34:08):
When we buy meals, when we buy houses, when we buy
tobacco, right?
Tobacco products or cigarettes.
But yes, we do have taxes ontransactions that are sales,
right?
SPEAKER_01 (34:22):
We don't have any sales tax.
We have transaction taxes.
SPEAKER_00 (34:27):
I see.
When you buy a house, both thebuyer and the seller...
Right.
(35:01):
But that
SPEAKER_01 (35:04):
same argument with interest and dividends taxes,
it's not a broad-based incometax because it's only select
group and small amount.
Mind-boggling.
So revenues have changed.
Have there been other changes?
SPEAKER_00 (35:18):
Yeah, so the interest and dividends tax
repeal was the one that had thelargest impact on this state
budget specifically, right?
Because we're going into thefirst state budget where we
haven't had the interest anddividends tax.
First in a very long timebecause the tax was established
back in 1923.
Wait,
SPEAKER_01 (35:35):
1923?
SPEAKER_00 (35:38):
Yes.
SPEAKER_01 (35:39):
Oh my God, Phil.
So 102 years...
Am I doing my math correct onjust the years?
Yes,
SPEAKER_00 (35:47):
you are doing the math correct on just the years.
And I just checked to make sure.
1923.
It was established in 1923.
And again, it was 4% from 1923to 1977 when it was increased to
5%.
And then it was 5% from 1977 to22 when it started phasing out
as part of the 2021 statebudget.
(36:07):
And the 2023 state budgetaccelerated the phase out.
SPEAKER_01 (36:10):
Okay, so no one has been around for a New Hampshire
state budget without thatrevenue in some capacity coming
in until right now.
SPEAKER_00 (36:21):
They certainly haven't been a policymaker
because presumably they werevery, very young in the late
teens and early 20s.
Well, we know
SPEAKER_01 (36:26):
what the average age is over at the statehouse, so
it's close, but not quite.
So that has happened from 1923until this year, and now it's
gone.
That's a big one.
SPEAKER_00 (36:36):
It's the largest one.
There have been some otherchanges as well.
This year, we've seen businesstax revenues be lower than they
have been in immediately prioryears.
Indeed, for a lot of statefiscal year 2025, state revenues
from business taxes were downbetween 15% and 20%, depending
on which month you looked at.
(36:57):
And to put that in context, thebusiness profits tax is the
largest tax revenue source thestate has by a factor of two.
is twice as large as the secondlargest state tax revenue
source, which is the meals andrentals tax.
And the business enterprise taxis typically in the top four or
five.
And those two business taxessort of work together as the
(37:18):
state's corporate tax structurein New Hampshire.
So that is our most importanttax revenue source.
I should say also that is rareamong states.
We are the state that relies oncorporate tax revenue more than
any other state.
It's about 36% of our taxrevenue in New Hampshire comes
from corporate taxes thebusiness profits and business
enterprise taxes.
And we are the only state wherethat is our largest source of
(37:41):
revenue, unless you, well, Iwon't even get into that.
But New Hampshire is the statethat relies on business tax
revenues more than any otherstate.
It was 36% of the tax revenuecame from business profits and
business enterprise tax revenuescombined.
So it's a really important taxrevenue source for the state of
New Hampshire.
(38:01):
So those tax revenues being downby 15 to 20% is something
something that policymakers sawand we saw at NHFPI for a little
bit more than a year.
This is something that we'vebeen expecting and that was a
trend that started back in thefirst year of the state budget
that just finished.
That is something that is verydifferent from what we saw for
(38:21):
really the last four budgetcycles before that.
Because over the last fourbudget cycles before this most
recent one, revenues had beengoing up sometimes in surprising
fashions for a variety ofreasons, but those revenue
increases are not something thathas been sustained and And those
have been driven largely by thebusiness profits tax and the
real estate transfer tax.
And both of those haveatrophied, right?
(38:43):
Both of those have gone down interms of the amount of revenue
they've collected.
And that's something that we sawgoing into this budget cycle at
the same time that the interestand dividends tax was being
repealed, that liquor commissionrevenues were not very strong.
Meals and rentals tax revenueshave been doing fine, but
nothing super profound.
So we're going into a fiscallyconstrained environment in that
there's less revenue coming in.
(39:04):
Over the long term...
Oh, sorry.
Go ahead, Liz.
SPEAKER_01 (39:06):
No, go ahead.
I'm just deep sighing over here.
I'm good.
I'm good.
Quote, unquote, I'm good.
SPEAKER_00 (39:13):
There have been policy changes that have likely
affected that business taxrevenue.
But one thing that is clearlylowering our revenue is that
since 2015, there have been aseries of rate reductions for
the business profits tax rateand the business enterprise tax
rate.
And that over that time periodfrom 2015 to 2024, so the first
rate reduction was in 2016,there were incremental rate
(39:33):
reductions.
that has probably cost the stateabout a billion dollars in
revenue, between almost about800 million and almost 1.2
billion.
So that's a lot of revenue thestate didn't collect that it
could have collected over thattime period.
And those revenues, as a result,if you look year over year, then
(39:55):
we're talking about roughly 190or 200 million dollars in
revenue a year from the businesstaxes currently, or in tax year
2024, that if the tax rates hadbeen at 2015 levels would have
been collected by the state.
By the way, it is adjusted forpotential economic effects from
having those business tax rateslowered.
So there has been somediscussion in the past about
(40:17):
lowering business tax ratesbrings in more growth, brings in
more revenue.
Its effects, at least in the NewHampshire-based data and in some
of the national research, theeffects on the economy are not
very clear.
There's a lot of nationalresearch that makes a wide
variety of conclusions, but noneof them suggest that we would
have collected more revenuebecause of lowering the
(40:38):
corporate tax rate in NewHampshire.
And as a result, we've lostrevenue.
And those estimates that I gaveyou account for some of that
economic uncertainty as to howmuch could have been earned
back, if you will, by highereconomic growth because of those
lower tax rates.
SPEAKER_01 (40:53):
Let me try to do a quick and snappy recap.
Cut a tax that was for superwealthy folks on wealth that has
generated a lot of money forfolks who have a lot of money
sitting in a CD or stocks orsomething like that.
Got rid of that a few years ago.
Yes, so far.
SPEAKER_00 (41:12):
Yes.
I hope so.
Yes.
Thank God.
Well, I should say itdisappeared in 2025.
So this is the first year thatwe have nothing whatsoever.
Because it
SPEAKER_01 (41:19):
had been phased out.
And now it's gone.
So it's gone for this nextfiscal year.
For the first time, no interestand dividends tax since 1922.
Other taxes have beenintentionally decreased.
SPEAKER_00 (41:32):
Yes.
Business profit tax, businessenterprise tax, meals and
rentals tax also went down ahalf a percent as well in the
2021 budget.
SPEAKER_01 (41:40):
Which state lawmakers, those are the folks
who make those decisions, arethe folks in the statehouse.
Yes.
And then we also have to beaware of variables happening now
where tourism may be affectedby...
how folks are feeling about howmuch money they actually have
(42:00):
for travel.
And so that could impact themoney in New Hampshire as well.
SPEAKER_00 (42:06):
Yes.
SPEAKER_01 (42:07):
Okay.
So we also have what money isbeing spent in the state.
So we have all of these cutsintentionally.
This wasn't magic that thishappened.
SPEAKER_00 (42:20):
No, none of this is magic.
SPEAKER_01 (42:23):
There is no magic in the state budget.
What other big debates happenedin the state budget?
And I know we're way over time,Phil.
So if you need to go, I totallyunderstand as well.
SPEAKER_00 (42:46):
Yeah, I'll probably need to go around six, but it's
my fault that we're way over
SPEAKER_01 (42:50):
time.
You're doing great.
All of this is so good.
It's all so good.
SPEAKER_00 (42:52):
Okay, good.
I'm glad it's good content.
And I'm probably giving you alot to edit.
So my apologies.
I
SPEAKER_01 (42:57):
love it.
I will do a two-parter if I needto.
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