SPEAKER_00: 0:00

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 some folks, not happy for others, but it is a new state fiscal year. We'll finally enter state fiscal year 2026.

SPEAKER_01: 0:16

Phil, we are recording on state fiscal year eve. And I myself will be leaving milk and cookies out for you because I'm assuming you go around 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 the lawmakers, for you as well.

SPEAKER_00: 0:35

For someone who is going around on the new state fiscal year eve, there is a little bit of a benefit because some states don't have a July 1st state fiscal year. So you don't have to cover the whole country all at once. But if you need to do it at nighttime This is not a good time of year for that, right? It's great if you can do it during the day, but we don't have very, in the Northern Hemisphere, we don't have very many nighttime hours here. So I would like to fulfill that wish for you, but that's a lot of households to get to in the short nighttimes that we have, you know, June 30th to July 1st.

SPEAKER_01: 1:09

I believe in your magic. I believe in you, Phil. I have no doubt that you will get it all done for us in this one night of the year.

UNKNOWN: 1:20

Music

SPEAKER_01: 1:28

Welcome to New Hampshire Has Issues, a podcast that dares to ask, can we make a conversation about the state budget super interesting?

SPEAKER_00: 1:40

We're going to try, Liz. I try to do that most days of my job.

SPEAKER_01: 1:44

That is your full-time job. Do you have a tagline for me, Phil? What do you think?

SPEAKER_00: 1:49

New Hampshire Has Issues, the podcast that dares to ask, New Hampshire is a great state. How could we make it better?

SPEAKER_01: 1:56

Oh, that's like an optimistic spin on the whole concept. I love

SPEAKER_00: 2:02

that. most legislators do in any two-year term that they vote on in terms of investment is the state budget. I mean, this state budget is$15.9 billion over two years. That's a lot of public resource that we are investing in ourselves in one way or another. And I think this podcast is a great venue for asking, how are we investing in ourselves, right? If New Hampshire has issues, because there are a lot of issues to deal with, if New Hampshire has issues, how can we make the state better through our own collective fiscal policy choices?

SPEAKER_01: 2:56

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 at the New Hampshire Fiscal Policy Institute. Phil, welcome to the show. I am so happy that you are here.

SPEAKER_00: 3:13

Thank you, Liz. It's great to be here. Thanks for having me on the show.

SPEAKER_01: 3:15

Of course. There is Literally no one on planet Earth I would rather have on this show talking about the state budget. And I'm not even going to apologize to everybody else on planet Earth because, Phil, you are the expert on this topic. You've come up on the podcast before. You came up in the child care episode with Kenz Nicholson where, you know, gave you a shout out for the work that New Hampshire Fiscal Policy Institute does. But I brought up a moment where I had sent you an email with a question. And you responded within four minutes. I don't know if you remember that, Phil.

SPEAKER_00: 3:50

I do remember this, yes. I was lucky to be that close to my email at that particular time. And that was a question I had a clear answer to. And that does not always happen, unfortunately, with emails.

SPEAKER_01: 4:01

Okay. All right, so let's start with a simple question, okay? The simple question, Phil, is are you a robot? How do you know so much about the state budget? How do you do it?

SPEAKER_00: 4:10

Well, one of the things that I think is important to remember is that when we are thinking about what our legislators are working on, when we're thinking about what advocates are working on, thinking about what journalists are working on, thinking about what people are working on in and around the state budget, lobbyists, community leaders, people who are thinking about how the state is funding their town, they're on the school board or they're on the select board or a city councilor, they have a whole constellation of things they have to think about, right? They have to think about, you know, what's going on relative to the state budget and also with our legislators, maybe the job that they have, right? Or what's happening in the other committees or what's happening in their town or what's happening in their family or what's happening on the other bills they may be following. At the New Hampshire Fiscal Policy Institute. track a lot of material. But because of the name, you heard the name fiscal policy right in there, New Hampshire fiscal policy. And the biggest piece of New Hampshire fiscal policy is the state budget. So we take and I say we because it is not just me, there's a team of now eight of us here at NHFPI. Yes, it's fantastic. There were times when there were just two of us.

SPEAKER_01: 5:23

I remember those times. Yeah,

SPEAKER_00: 5:24

right. So now with eight of us, I mean, the example that you just gave about the four minute reply, I was able to reply to you in four minutes, But it was a piece of research that senior policy analyst Nicole Heller had put together. I just happened to know where it was, right? So it is a team effort to know the state budget as well as we do here at NHFPI. And it is a cornerstone of our work. It is a key part of our work to understand what's in the state budget and explain it for folks, unpack it for folks, because we're talking about you know, a thousand pages. Most of them are just lines of numbers next to standardized names that don't really describe what it does, right? They don't really describe what's happening. And then 200 pages of text, depending on what's in the trailer bill, right? In the length of the trailer bill. So there's a lot to sort through. And everyone is affected by the state budget. All those folks I listed, you know, they all are busy. But we keep ourselves very busy with the state budget. And that means that we can be a resource for everyone else who wants to know about the state budget. They don't have to learn all the nitty gritty details. We can and we can unpack them and explain them. So we don't have to be robots because we've devoted the time to this because it is the biggest piece of New Hampshire fiscal policy that happens. And that's what we're here to do at the New Hampshire Fiscal Policy Institute.

SPEAKER_01: 6:41

I heard you not say yes or no on the robot question. So I'm just going to say it's still maybe.

SPEAKER_00: 6:45

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: 6:54

state budget, that phrase, is not like the most exciting thing ever. And I'm someone who actually watches these meetings. I read the reports and everything. What would be the best way to describe what a state budget is to you? the vast majority of people who are not paying attention.

SPEAKER_00: 7:15

So the state budget is how we decide where to allocate public resources at the state level. What do we spend money on? How do we raise that money? How do we organize that spending? The fun parts of the state budget, I say fun somewhat facetiously in that not all state spending is actually in the state budget. It's not that simple that you can look at the state budget and see everything the state does. Okay. About two-thirds of it are health services and education services. that health and social services part of the pie. And then another quarter, roughly, is education. And education includes funding for local public education, at least the funding that comes from the state, which, as listeners to your podcast know, is only a portion of the total funding that is used by local public education.

SPEAKER_01: 9:14

Shout out to the Zach Sheehan episode.

SPEAKER_00: 9:16

70% of local public education is funded by property taxes that are raised locally. So only a portion comes from the state. And also funding for the public university system. And then the rest, we can see justice and public protection. So think your Department of Safety, Department of Corrections, right? Transportation. So all the transportation infrastructure in the state and the operations of the Department of Transportation. Resource protection development. So think Department of Environmental Services, Department of Business and Economic Affairs. These entities that exist for specific purposes that are state functions. And then general government, Department of Treasury, Department of Revenue Administration, Department of Administrative Services, Fund for on organizations like that that have pretty broad scope. So, you know, that's all in the state budget. But we, the reason the state budget is one thing, is one single set of decisions, is because it is the collection of all of those trade-offs as to how the state government is going to serve the public through 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 every odd numbered year.

SPEAKER_00: 10:30

Correct. What will happen is the state agencies actually start working on their budget proposals in the summer of even-numbered years, and then the governor will look at those budget proposals from the state agencies and put together a budget proposal from the governor that is introduced in February.

SPEAKER_01: 10:49

So this process is really a full year, essentially, with the agencies and the departments putting together what they... They're essentially on the ground doing the work, seeing what needs to happen day to day, and they bring forward a proposal and say, this is what we believe we need. What do you say to folks who compare a state budget to a household budget? I've heard this comparison made. There are parts of that that I like. There are parts that don't quite hit the mark. You as a budget expert, What's that comparison like for you?

SPEAKER_00: 11:22

The comparison to the household budget is interesting because there are certain costs that households have to face. And there are certain costs that states, depending on what they've agreed to do, for example, in their state constitutions, what they've agreed to do with the people that they serve and in their state laws, that they also have to incur. It is somewhat different in that in a household budget or in a business budget, you have a different array of things in terms of the services provided and different goals that you may have, right? So the set of goals that a household has might be different than a set of goals that a state has. And that could be around services to individuals who have much more difficulty taking care of themselves, right? Whether they have some form of disability, they have some sort of structural disadvantage, they've Right. Those individuals are examples of how, you know, in a household budget, you may have an instance where a household is contributing a lot, whether it's a charitable contribution or is spending resources, time and money on a neighbor who's in need or a family member who's in need. So you could draw some parallels there. On the income side, it's a fair bit different for a household. It's much harder for a household to choose their income. There's still some that can be done to choose their income, but it's much harder for a household to choose their income. And to choose some of their costs than it is for a state government, because a state government can raise more money if it needs to. Right. And they can do that through a policy change. That's not that that doesn't have any effect, but it can do it through a policy change. Whereas for a household, it's a little harder to say here, my costs are going up and I'm going to raise my income to meet it. Some households can do that, right? You can work longer hours, take on second and third jobs, and many households do, but it is a different calculus for state governments. One contrast that I'll draw is with the federal government, because the state government has to balance its budget. The federal government does not. So the state government has to have revenues and expenditures match, roughly, and the federal government doesn't have to. The federal government can run a deficit. But in both cases, with both the state government and the federal government, you're reflecting the value of a society in the tasks that you decide to undertake as a government. You're reflecting what people vote for when they vote for lawmakers, right? You're reflecting what past lawmakers have decided is important and decide to appropriate resources for. And those public service components, that's where there's not as clear a parallel between a household budget or a business budget, because it's a different set of responsibilities. And again, different ways to raise money to meet those responsibilities.

SPEAKER_01: 14:03

You use the words revenues and expenditures. Very important, I think, in the conversations we're about to have. Revenues being the money that comes 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 of revenues and think just taxes, but there's a lot of revenue that's not taxes. So just I'll put that caveat in. But yes, revenues, money coming into the state from the federal government, from fees, from taxes, from other sources.

SPEAKER_01: 14:34

And expenditures being how that money is then spent, right? by the state where that money is then going out to some of the programs you said earlier, whether it's Medicaid, whether it's the Department of Transportation, whether it's education, like that's how the money is then spent. Does the state budget show money in or does it just show money out?

SPEAKER_00: 14:57

The state budget itself as a document in its purest form, if you will, and I say purest form because many things can be attached to the state budget, but the state budget itself just shows money going out. So it includes revenue estimates for how much money will be coming in. And those are estimates that policymakers make. But it doesn't show all the infrastructure associated with money coming in. But it does show all of its expenditures line by line. Some of the federal matching funds, those will show up as revenue in the state budget. But most of the detail in the state budget is about the expenditures.

SPEAKER_01: 15:30

So how... do lawmakers when they're going through this budget process, when they're having their meetings, when they're debating, how do they know what revenues are going to come in in the future? They're looking forward for the next two years, essentially, when they're doing this process. How do they know? I can sort of predict my salary for two years, right? Assuming I keep my job, my wife keeps her job. So there are some things, like you said, like the household budget doesn't exactly match up as that metaphor, but those are things I can sort of predict for myself. 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 sources are tax revenue sources. So their legislators, particularly legislators on the Ways and Means Committees in both the House and the Senate, will look at what's the economy looking like, what might tax revenues associated with, for example, meals and rentals tax revenues. That's when you go out to eat and you pay eight and a half percent on your restaurant bill, or you stay in a hotel in New Hampshire and you pay eight and a half percent on that hotel. How many people are going to be going to restaurants and using hotels right so that's a revenue source a tax revenue source that they will project they'll say we think that's going to be three and a half percent growth in the first year and two percent growth in the second year because you know as far as we know the the economy's going pretty well and we think that people are going to keep vacationing in new hampshire keep going out to eat and we think inflation is going to be about this so that's what we'll that'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 to diesel that is how many people are driving how Yeah. So what does that mean? And then those$2 go to fund health services for one of those roughly 180, 185,000 people in New Hampshire. So that's federal money. That is revenue to the state. And we're talking like$2.4 billion in revenue last fiscal year, fiscal year 2024, I should say, 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 was being precise here. You're doing great. Right. So there are several different ways that policymakers, when they're looking at what does the next two years look like, they have to consider what the economy looks like, how the economy interacts with the tax revenue sources, how people's behavior interacts with other revenue sources, and what is the structure of federal funding that'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. They have to predict how those folks might behave and whether or not they want to fund certain programs at the same level or at the level that they predicted. Phil, how do they do this? How do they know how much money is going to come in on things like lotto tickets? That seems like gambling on gambling.

SPEAKER_00: 19:50

Well, the future is the hardest thing to predict. So the policymakers who are thinking about who are on the ways and means can Yeah. Right. Right. You can look at those numbers and say, okay, so there was this increase in Ohio. Ohio has these states around it that do or do not have something similar. So what might we expect in New Hampshire? And do a little bit of math to project that. It is complex. There's always guesswork involved. There's uncertainty. And usually when there's uncertainty, you might want to provide a range. You might say, we're going to collect from the meals and rentals tax somewhere between$450 and$500 million each year, right? So like, I don't know where it is in that, but we're going to collect that much. But when you're building a budget, you need a single number. So what the Ways and Means Committees do and then the Finance Committees do when they're putting together the budget totals, they're using point estimate, you could call it their best guess, but they're using those single numbers to put together their revenue projections. And there's inherent risk in there because there's a lot of uncertainty, right? You don't exactly know what's going to happen. In other states, there are some processes that are designed around sophisticated modeling to say, all right, what is this revenue source going to look like? How much are we going to bring in in tax revenue? What is personal income looking like? What are sales looking like? What's property value doing? You can do all those things with projecting tax revenue sources in more complex fashions. But we in New Hampshire, we tend to rely on our Ways and Means Committee members who are legislators in the House and the Senate to synthesize all that information and then come up with a set of numbers that are just those single point estimates and use that in the state budget process.

SPEAKER_01: 22:09

That is a huge responsibility. Holy smokes to hear that responsibility of the Ways and Means Committee members. Oof. Okay, so we talked about some of the revenues and some of the different ways money comes in. But sometimes lawmakers change policies that remove revenues pretty recently. I actually don't know how recently the policy passed. You are going to know. I know it, Phil. I know you will. But an example came up when I spoke with leader Perkins Cuoco about the interest and dividends tax. That was a tax that existed. And then it was eliminated at some point. And there was a fake funeral held by the folks who got What was that? She explained it to me, but I know, you know, you look at it from sort of the budget space. What happened there? How much did that change? course of New Hampshire reality when it comes to the budget and revenues.

SPEAKER_00: 23:04

Yeah. So the interest and dividends tax was a personal income tax that New Hampshire had, right? And it was a tax on not all forms of income, right? So not wages and salaries, not income that you earn from working. It was a tax on income generated by wealth, right? So to pay this tax, you had to own something that generated money. money for you that generated income for you different from for example a capital gains tax would be if you sold something if you bought something at a lower value and sold it at a higher value like a stock that would be a capital gain but that's that's when you have to sell it this is income generated from holding a stock and for example earning dividends or distributions from it so you have ownership in a company right or you have you know imagine if you had a lot of savings in a certificate of deposit

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 it generated more than$2,400 of income for you that year, you know, with an interest rate, right, that was generating that revenue for you. That would then mean that you had 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 interest and dividends tax back when it existed because that was the filing threshold. If you were 65 or older, if you were legally blind, if you had some form of disability that prevent you from working. There are other caveats there too. But basically, if you had that asset that generated more than$2,400 or for joint filers,$4,800 in income without you selling it, without you maybe even touching it, maybe you manage it and move it from one investment 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 it to the state of New Hampshire. Now, I say the$2,400 in And you might be thinking, well, that's not a lot to have in a CD. But that's not the amount that's in the CD. That's the amount that's earned from the CD or that you earn from owning stock or that you earn from owning a share of a company that's paid in dividends and distributions to you. Basically, a portion of that company's profits that they then say that we're going to send this 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 dividends tax from 1977 to 2022 was a 5% tax rate. So those happen to be the same number, 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 in interest and dividends tax, then that would be 5% of the amount that you earned in interest and dividends tax. So that would be$20. Okay. If you earned$20 in taxable income, and let's back out then your$2,400 exemption, then you'd have$48,400 generating that$20 at that 5%, right? Because your first$2,400 is free, and then Earning 5%, you would have at least$48,000-ish that would be generating that. Now, there are a lot of people who paid, when it existed, a relatively small amount in interest and dividends tax. But more than half of the income from the interest and dividends tax the state collected came from people filing who had more than$200,000 in interest and dividend income alone. Alone. Alone. Alone. So not counting salaries, not counting 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 that much 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 been generated 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 this point. This may be, again, a stock dividend 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 or collecting, because sometimes economists will call this unearned income, if you're collecting passive income of$200,000 or more, then at 5%, you're talking about$4 million in assets that are generating that income. And 5%, you know, with today's interest rate environment, it's a healthy but not insurmountable return, you could get 10%, you could 12%, then you're talking about 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 and distributions from like the S&P 500, so let's use numbers from 2020, I have those in front of me, that dividend average was 1.5%, which means that if you had$200,000 or more in taxable dividend income, then you had probably about$13.4 million in the S&P 500 average return that year. So it's important to remember that when we're talking about the interest and dividends tax, oftentimes we're talking about how much revenue it's generated for the state. And last fiscal year, that was$184.6 million, right? It's not nothing. That's not nothing. And we can talk about that in context too. But more than half of that money came from a relatively small number of filers. We're talking about, I think, roughly 2,500 filers who reported more than$200,000 in interest and dividend income. So that means that those filers who are paying more than half of the revenue collected by the interest and dividends tax. This is not more than half the filers. There were many more filers. But it's more than half the revenue collected by the interest and dividends tax. Probably had... millions of dollars in assets that were generating that taxable income. And again, it's not the whole$200,000 was taxed.$200,000 in taxable interest and dividend income meant that at a 5% rate, you're talking about paying$10,000 in taxes. That was a lot of numbers for a podcast, Liz. I'm sorry.

SPEAKER_01: 29:22

Phil, my brain has exploded. Please believe me when I say my mind is boggled. I wrote things down. I cannot believe how much money we are talking about. And I say that, Phil, because I have heard folks say my family makes less than$200,000 a year. I don't want that tax to happen. It's like that's not you. It was not impacting you. Right. Like you could have savings or stocks or so forth. But just on your salaries, just having jobs that where you and a spouse together make less than$200,000 a year, and that is the money that you have, the interest and dividends tax had nothing to do with you, if that is the case.

SPEAKER_00: 30:09

Right. If you are just earning money from a salary and wages, then the interest and dividends tax is not affecting that. You have to have wealth that generates 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 not talking about your house value going up because the value of the houses around you also went up, right? I'm talking about wealth that is really an investable asset. You own part of a company. You have loaned someone money who's paying you interest. That it would be taxable under the interest and dividends tax. Now, people with low incomes do pay interest and dividends tax if they have that kind of income. However, that's a question that could 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 income above that is being taxed in this interest and dividends income, then policymakers could adjust that filing threshold because it hadn't been adjusted for us in some time. It's not automatically adjusted for inflation or anything like that. So that's something that policymakers can adjust and they have adjusted at filing thresholds for business taxes, for example. Most of the revenue, again, the majority of the revenue, comes in tax payments of$10,000 or more from individuals and joint filers who are earning$200,000 or more or again collecting$200,000 or more from the wealth and assets that they own which is probably Almost has to be millions of dollars to generate that sort of income with any sort 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 dividends tax or was until January 1st, 2025 when the interest and dividends tax was repealed. The initial law that repealed it passed in 2021 as part of that state budget.

SPEAKER_01: 31:53

Oh, we've talked about that budget before on this podcast. The 2021 budget had a lot of things built in, like the education freedom accounts was part of that budget as well. That was when it was first introduced. Oh boy, Phil, it's hard to come back from all this. This is a lot. Why? Did they cut this tax? What was the rationale behind getting rid of it? Maybe you don't know that answer, but this seems like a big deal to have gotten rid of this.

SPEAKER_00: 32:20

There were three primary rationales offered, and I'm going to paraphrase here. Sure. One was there are individuals who were affected by the interest and dividends tax who are– living off the income associated with the interest and dividends tax. Think about retirees, people who are not earning salaries and wages, which aren't affected by the interest and dividends tax, but instead are earning dollars through an annuity or a pension or something that is taxable. Now, note that many common types of retirement investments, such as individual retirement accounts, those are not taxable. So we're talking about a tax that affected sort of at most about 10% of the state's population, if you count everyone that was in the retirees by any stretch, right? But for people who have certain types of investments, then this would affect their retirement income. And if that's the only income that they have, then this is a 5% tax on it over that certain low threshold. The second rationale offered was around attracting investors, bring investors to New Hampshire, people who are high wealth individuals who want to come to New Hampshire and may, because of their proximity to other opportunities for investment in New Hampshire, may want to invest more in New Hampshire, as opposed to if they lived in a other states that did tax their interest and dividend income. And then the third reason that was offered was really more of a principled reason of we say we are a state without an income tax, so we should not have an income tax, right? And this is an income tax on personal income. So those were the three primary reasons that were offered in the public policy discussion. And I'm paraphrasing, right? I'm paraphrasing as best I can. But those were the reasons in summary.

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, that is 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 on transactions 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 the buyer and the seller... Right. But that

SPEAKER_01: 35:04

same argument with interest and dividends taxes, it's not a broad-based income tax 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 the largest impact on this state budget specifically, right? Because we're going into the first state budget where we haven't had the interest and dividends tax. First in a very long time because 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 on just 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 1923 to 1977 when it was increased to 5%. And then it was 5% from 1977 to 22 when it started phasing out as part of the 2021 state budget. And the 2023 state budget accelerated the phase out.

SPEAKER_01: 36:10

Okay, so no one has been around for a New Hampshire state budget without that revenue in some capacity coming in until right now.

SPEAKER_00: 36:21

They certainly haven't been a policymaker because presumably they were very, 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 1923 until 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 other changes as well. This year, we've seen business tax revenues be lower than they have been in immediately prior years. Indeed, for a lot of state fiscal year 2025, state revenues from business taxes were down between 15% and 20%, depending on which month you looked at. And to put that in context, the business profits tax is the largest tax revenue source the state has by a factor of two. is twice as large as the second largest state tax revenue source, which is the meals and rentals tax. And the business enterprise tax is typically in the top four or five. And those two business taxes sort of work together as the state's corporate tax structure in New Hampshire. So that is our most important tax revenue source. I should say also that is rare among states. We are the state that relies on corporate tax revenue more than any other state. It's about 36% of our tax revenue in New Hampshire comes from corporate taxes the business profits and business enterprise taxes. And we are the only state where that is our largest source of revenue, unless you, well, I won't even get into that. But New Hampshire is the state that relies on business tax revenues more than any other state. It was 36% of the tax revenue came from business profits and business enterprise tax revenues combined. So it's a really important tax revenue source for the state of New Hampshire. So those tax revenues being down by 15 to 20% is something something that policymakers saw and we saw at NHFPI for a little bit more than a year. This is something that we've been expecting and that was a trend that started back in the first year of the state budget that just finished. That is something that is very different from what we saw for really the last four budget cycles before that. Because over the last four budget cycles before this most recent one, revenues had been going up sometimes in surprising fashions for a variety of reasons, but those revenue increases are not something that has been sustained and And those have been driven largely by the business profits tax and the real estate transfer tax. And both of those have atrophied, right? Both of those have gone down in terms of the amount of revenue they've collected. And that's something that we saw going into this budget cycle at the same time that the interest and dividends tax was being repealed, that liquor commission revenues were not very strong. Meals and rentals tax revenues have been doing fine, but nothing super profound. So we're going into a fiscally constrained environment in that there's less revenue coming in. 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 tax revenue. But one thing that is clearly lowering our revenue is that since 2015, there have been a series of rate reductions for the business profits tax rate and the business enterprise tax rate. And that over that time period from 2015 to 2024, so the first rate reduction was in 2016, there were incremental rate reductions. that has probably cost the state about a billion dollars in revenue, between almost about 800 million and almost 1.2 billion. So that's a lot of revenue the state didn't collect that it could have collected over that time period. And those revenues, as a result, if you look year over year, then we're talking about roughly 190 or 200 million dollars in revenue a year from the business taxes currently, or in tax year 2024, that if the tax rates had been at 2015 levels would have been collected by the state. By the way, it is adjusted for potential economic effects from having those business tax rates lowered. So there has been some discussion in the past about lowering business tax rates brings in more growth, brings in more revenue. Its effects, at least in the New Hampshire-based data and in some of the national research, the effects on the economy are not very clear. There's a lot of national research that makes a wide variety of conclusions, but none of them suggest that we would have collected more revenue because of lowering the corporate tax rate in New Hampshire. And as a result, we've lost revenue. And those estimates that I gave you account for some of that economic uncertainty as to how much could have been earned back, if you will, by higher economic 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 super wealthy folks on wealth that has generated a lot of money for folks who have a lot of money sitting in a CD or stocks or something 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 it disappeared in 2025. So this is the first year that we have nothing whatsoever. Because it

SPEAKER_01: 41:19

had been phased out. And now it's gone. So it's gone for this next fiscal year. For the first time, no interest and dividends tax since 1922. Other taxes have been intentionally decreased.

SPEAKER_00: 41:32

Yes. Business profit tax, business enterprise tax, meals and rentals tax also went down a half a percent as well in the 2021 budget.

SPEAKER_01: 41:40

Which state lawmakers, those are the folks who make those decisions, are the folks in the statehouse. Yes. And then we also have to be aware of variables happening now where tourism may be affected by... how folks are feeling about how much money they actually have for travel. And so that could impact the money in New Hampshire as well.

SPEAKER_00: 42:06

Yes.

SPEAKER_01: 42:07

Okay. So we also have what money is being spent in the state. So we have all of these cuts intentionally. This wasn't magic that this happened.

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 happened in the state budget? And I know we're way over time, Phil. So if you need to go, I totally understand 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 a lot to edit. So my apologies. I

SPEAKER_01: 42:57

love it. I will do a two-parter if I need to.