NH bill would reverse plans to end dividend and interest tax

Plans to phase out New Hampshire’s tax on dividend and interest income will help the rich get richer but harm others, say backers of a bill to preserve this form of taxation.

The tax will bring in an estimated $129.5 million this year. It will disappear in 2027 under current law.

Senate Bill 261, whose co-sponsors include NH Sen. Donovan Fenton of Keene, would reduce but keep alive a tax that began 100 years ago.

Fenton, a Democrat, said money from this tax will be needed in coming years with the end of unprecedented federal spending associated with the COVID-19 pandemic.

“We had a lot of federal money come in this year that is not going to be coming in the next couple years,” he said.

Fenton, vice president of the Fenton Family Dealerships in Swanzey, said businesses aren’t fleeing the state because of its present tax structure, which he said produces state revenue sorely needed to address issues limiting business growth.

“Businesses are struggling for their employees to find housing and to find child care — those are things that taxes can go to,” he said.

Payers of the interest and dividend tax tend to be high-earners, NH Sen. Lou D’Allesandro, D-Manchester, said in an interview Thursday. He described efforts to end it as “the wealthy taking care of the wealthy.”

A dividend is a distribution of company earnings to shareholders. Interest is money paid by a financial institution for using an investor's funds.

The tax was 5% but is being reduced 1 percentage point per year until it sunsets. It now applies to those making more than $2,400 annually in interest and dividend income. SB 261 would increase this threshold to $50,000.

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New Hampshire does not tax wage income and doesn’t have a general sales tax. That keeps overall taxes low compared to most states, even though average property tax rates are relatively high, said Sen. Tim Lang, R-Sanbornton, who opposes SB 261.

He said the state now has a budget surplus of more than $200 million because state revenue has come in above estimates. There’s financial breathing room to continue with the phase-out of the dividend and interest tax, Lang said.

“Do we just want to collect revenue for the purpose of spending or is it for a legitimate state need?” he asked.

Lang also said there are many retirees who depend on interest and dividend income, so it’s not the case that eliminating this tax will help only those on the higher end of the economic spectrum.

“The elderly are the people most likely to be invested in their retirement in stocks and bonds that have a dividend,” he said.

“And I’m not a big believer in identity politics. They are all New Hampshire citizens, and New Hampshire citizens per our constitution should be treated equally.”

SB 261 is not yet set for a committee vote, which will precede its consideration on the Senate floor.

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Rick Green can be reached at rgreen@keenesentinel.com or 603-355-8567. These articles are being shared by partners in The Granite State News Collaborative. For more information visit collaborativenh.org.