Photo by Dennis Hull
A near-evenly divided New Hampshire House passed a budget on Thursday that significantly speeds up the phase out of the state’s tax on investment earnings, setting up the Granite State to become next no-income-tax state in less than 18 months – on January 1, 2025.
The new budget, expected to be signed quickly into law by Governor Chris Sununu, puts New Hampshire two full years ahead of schedule on its current plan to phase out the 4% interest and dividends tax by 2027. Tennessee repealed a similar version of this tax, known as the Hall Tax, in 2021.
“Our priority is to put our constituents first and give them the necessary tools needed to truly live the way they see best,” remarked Speaker of the House Sherman Packard, a Republican from Londonderry. “We don’t need to raise taxes or fees to do that. This budget makes that clear.”
With his caucus holding a razor-thin majority – 200 Republicans to 196 Democrats – Speaker Packard and Republican leaders demonstrated remarkable aptitude in budget negotiations, ensuring that the interest and dividends tax phase out would be accelerated despite the opposition of many Democrats. The budget and its corresponding tax cuts (HB 1 and HB 2) passed the House in concurrence overwhelmingly.
While New Hampshire does not levy a tax on wage income, its 4% tax on interest and dividends has been holding the state back from claiming its rightful place as a true no-income-tax state. The reforms enshrined into law today will soon remove this significant penalty on investment income, leaving middle-class folks free to keep 100% percent of their returns as they save for retirement (after federal taxes).
That makes New Hampshire a much more appealing alternative for residents of next-door Massachusetts, where voters recently overturned a longstanding 5% flat tax on wage, salary, and investment income. Now, all income over $1 million will be subject to a 9% state tax.
The wave of tax hikes coming out of Massachusetts is clearly becoming too much for high-earners to bear. According to a survey of certified public accountants in Massachusetts, 82% said that their high-income clients have expressed plans to leave the state in the next 12 months. With no income or sales tax, New Hampshire will become an even more tantalizing option for Massachusetts residents, with its major cities of Manchester and Concord just an hour’s drive from Boston.
Massachusetts is not the only blue state losing ground as other states race to slash income taxes. On the West Coast, the Washington state supreme court ruled that, despite plain language in the state constitution prohibiting capital gains taxes and a century of judicial precedent affirming that reality, a new 7% tax on capital gains income passed by the legislature is in fact constitutional. As New Hampshire eliminates its investment earnings tax, blue states like Washington are only doubling down on bad policy, hitting the pensions and 401(k)s that ordinary Americans are relying on to support themselves and their loved ones through retirement.
The good news in New Hampshire could not come soon enough. By the time 2024 draws to a close, the Granite State will not only replace Washington as the 8th no-income-tax state, but also join Alaska as one of just 2 states not to levy either an income tax or a sales tax. People, jobs, and investment will continue flowing out of high-tax environments to states like New Hampshire that get it right.
ATR commends Governor Sununu, Speaker Sherm Packard, House Majority Leader Jason Osborne, and Senate President Jeb Bradley for putting their constituents first, successfully shepherding through the speed up of this phase out in a challenging political environment, and committing to the spending restraint that ensures residents will keep more of their hard-earned dollars for years to come.