The House Budget: Solutions Instead of Bandaids
On Thursday, the New Hampshire House of Representatives approved a $12.9 billion state budget along party lines.
To make a long story short, it’s a balanced and responsible budget that addresses pressing problems, like mental health and public school funding, while avoiding both a sales tax and an income tax AND providing property tax relief.
It was a budget I was proud to support.
This year, the budget was split into three separate bills:
HB 25: the “capital” budget for improvements to state parks, construction and renovation of state buildings, and infrastructure improvements.
HB 1: appropriations for all state departments for the fiscal years ending June 30, 2020 and June 30, 2021.
HB 2: the so-called budget “trailer” with enabling legislation that specifies changes to state fees, funds, revenues, and expenditures needed to ensure the budget is adequately funded.
While there was bipartisan consensus on the capital budget (it was approved by a 362-5 margin), votes on the other two budget bills were overwhelmingly split along party lines.
HB-2 passed 224-160. The approved bill included two floor amendments, both addressing concerns raised by Gov. Sununu and many members of both parties. One restored the governor's request of $500,000 to the Internet Crimes Against Children Task Force. Another set aside $1.2 million to plan and design a replacement for the state prison’s Secure Psychiatric Unit (SPU). For decades, the prison cellblocks of the SPU have been where the state has housed mentally ill patients who pose a risk of violence to themselves or to others, regardless of whether or not they have committed a crime. This appropriation will help plan a new, fully accredited facility as well as to develop a transition plan for the people now housed in the SPU.
HB-2, the third and final budget bill, HB-1, passed by a similar 225-159 margin.
While all three budget bills now move on to the Senate, where revisions are likely, members of the Finance Committee should be proud of themselves for a job well done.
In this session, we had a fundamental choice of either addressing some of our state’s more pressing problems—or continuing to kick them down the road. For decades, past state budgets have settled for bandaids instead of genuine solutions when funding public schools, mental health programs, and higher education. As a result, communities like Berlin have been closing elementary schools and laying off teachers; patients needing mental health care have languished in hospital emergency rooms waiting for care in psychiatric hospitals ; and our young people have been paying the highest in-state college tuition rates in the country.
The price of providing solutions instead of bandaids will be a 5% tax on capital gains that is an extension of the existing 5% Interest and Dividends tax.
Although the other New England states all tax capital gains, a capital gains tax would be new in New Hampshire. So let’s take a look at exactly what’s being proposed.
What Is a “Capital Gains Tax” and How Would It Work?
A tax on capital gains taxes a portion of the profits on “unearned” income. This is income created by the sale of stocks, businesses, and real estate that have grown in value. You only pay a tax if these assets have grown in value. If you’ve lost money, there is no tax. If you’ve made money, you still keep the vast majority of your gain, but a kid also gets a better education.
The capital gains tax that was approved in the budget on Thursday is basically an extension of New Hampshire’s existing 5% Interest and Dividends tax, which also taxes interest, dividends, and taxable annuities at 5%. The capital gains tax would simply extend that list to include gains realized from the sale of stocks, businesses, and homes.
More than 80% of the new revenue will come from taxpayers with incomes above $200,000
Gains from typical primary residence sales and gains realized within pension plans will not be taxed
Personal exemptions raised 350% to $25,000 for married seniors (age 65+) and to $12,500 for single seniors, and other individual and disability exemptions more than doubled
The 5% rate is lower than comparable rates on investment earnings in all other northeastern states.
Most homeowners selling a primary residence would not have to pay a tax. There is a $250,000 exemption for single taxpayers and a $500,000 exemption for a couple). Only gains above these amounts would be taxable.
A Better Choice for Our Kids and for Working Families
As a revenue raising mechanism for education, a capital gains tax—especially in a state like NH—is a brilliant choice. One of the better arguments for it is what it isn’t—it’s neither a sales nor income tax. It’s also not another hit for overburdened local property taxpayers.
As the Center on Budget and Policy Priorities points out, “Most state and local tax systems are upside down: the wealthy pay a smaller share of their income in these taxes, on average, than low- and middle-income people do, even though they are best able to afford to pay more. Capital gains, which go overwhelmingly to the wealthiest households, receive special tax preferences in a number of states, such as a partial exemption.”
You can read more about the policy advantages of taxing capital gains here.
The bottom line is every kid in NH deserves a place on the starting line. No child deserves to be held back 20 feet behind the others while other kids get a head start just because they won the birth lottery and live in a different zipcode.
By passing this budget, the House would actually be giving the governor what he’s been telling the world he wants—a legislative solution rather than a court order.
So come on New Hampshire Senate and Governor Sununu. Let’s get it done.