CITIZEN VOICES® NH considers capital gains tax for education funding

Mar 08, 2019

The NH Legislature is currently debating a bill that would create a 5% tax on capital gains, lower the state education property tax, and increase funding to public schools.  

The problem of property-poor towns 

The move is driven by concerns over public school funding. While there are other sources of revenue that go to fund schools, like proceeds from the NH Lottery, the bulk of school funding comes from property taxes.  

A statewide education property tax contributes roughly $363 million per year to education funding. Overall, state money pays around $3,700 per public school pupil, plus a bit more for each kid who receives free or reduced lunch, is an English-language learner, or requires special education services.  

However, the average cost of educating a student in New Hampshire comes to around $15,000.  

It’s up to local communities to make up the difference, which they do through local property taxes. That poses a particular challenge for towns where property values tend to be low.  

Reductions in enrollment have also hit property-poor towns hard. For several years, the state guaranteed level funding for schools with declining enrollment, but that funding (“stabilization grants”) is scheduled to decrease over the next few years 

Capital gains tax: a potential solution? 

A capital gains tax is a tax on profits from the sale of certain types of assets, such as stocks or real estate (other than your primary residence).  

New Hampshire doesn’t currently tax capital gains, but the state does impose a 5% tax on earnings from interest or dividends.  

HB 686, sponsored by Rep. Richard Ames, would add capital gains to the state’s interest and dividends tax. It would also increase tax exemptions, leading to a total estimated increase in general fund revenue of about $95 million. 

The bill then increases the state’s per-pupil funding to public schools, raising the base level grant to $4,500 in fiscal year 2020, with smaller increases for those special categories of students. The bill calls for continued increases in future years, tied to the rise in the Consumer Price Index. Schools would no longer see funding cuts through the system of stabilization grants. 

The bill also cuts the amount of money the state is required to collect through its statewide education property tax by 25%.  

Pros and cons 

Supporters of HB 686 argue that the current education funding system isn’t working. They say too much of the burden of funding education is being left to cities and towns, placing a particular strain on communities with lower property values. The result? The quality of a child’s education in New Hampshire becomes a matter of zip code – a situation they argue opens the state up to another lawsuit.  

For Rep. Richard Ames, a capital gains tax would be a fairer way to provide property tax relief and increase education funding. According to AmesCapital gains income, which is investment income just as is interest and dividend income, is received mostly by people with high incomes... most of the proposed tax on capital gains will be paid by people with incomes in the top 20 percent of the income spectrum.” Ames also notes that all of New Hampshire’s neighbors have capital gains taxes.  

Opponents counter that a capital gains tax is bad economic policy, penalizing both investment and savings“This is an attack on business creation, a tax on risk-taking,” says Rep. Patrick Abrami. “Those who invest can win big and lose big. New Hampshire will not share in the losses but take 5 percent of the gain. This is not fair at all. It sounds like a redistribution of wealth.” 

Others express concern that the tax could drive investors to leave New Hampshire for other states, or note that the tax can be particularly unfair to those making long-term investments, since it does not take inflation into account when calculating how much someone has ‘gained’. They argue that there are better sources of revenue for increasing funding to schools, such as sports betting, leveling or raising business tax rates, or finding savings by decreasing government spending in other areas.  

Should NH create a tax on capital gains in order to lower state property taxes and increase public school funding?

Discussion held on Citizens Count website and Facebook page March 10, 2019

297 citizens responded267 citizens were opposed to a capital gains tax in NH14 citizens were in favor of a capital gains tax in NH16 citizens commented on related questions or issues

What Participants Said

No: 267 people were opposed to creating a tax on capital gains in order to lower state property taxes and increase public school funding.

  •  “New tax will never be used to lower property tax and go to schools. It will be used for new programs much like the lottery money. Please be truthful government officials. And no to the capital gains tax.”
  • “All they will do is spend the additional revenue and cut nothing anywhere.”
  • “The only thing that will lower property taxes is lowering spending.”

Yes: 14 people were in favor of creating a tax on capital gains in order to lower state property taxes and increase public school funding.

  •  “NH needs the tax revenue to ensure the state's fiscal health and economic vitality.” 
  • “As a property tax payer, I would say yes. I'm tired of my taxes going up every year and many on fixed incomes being unable to afford them.”
  • “Yes. Lower my property taxes. Thank you.”

Other: 16 people commented on related questions and issues instead.
These included:

  • Education isn’t all about funding: “You can't judge the quality of education by the amount of money you spend on it.”
  • Mistrust among citizens: "Wasn’t the lottery designed to pay for schools? Where is that money going???"

*Editor selection of actual participant quotes.

See additional comments on this question from Facebook

Comments

Patricia Howes
- Moultonborough

Mon, 03/18/2019 - 8:51pm

No!

David Lefebvre
- ROCHESTER

Sat, 03/16/2019 - 9:53am

No,

Jerry Stringham
- Woodstock

Fri, 03/15/2019 - 8:35pm

Yes,

This tax reform bill is a tax reduction for most New Hampshire citizens. Anyone who pays property taxes will see a reduction of the state portion of their property tax bill by 25%.

All NH taxpayers who pay an interest and dividends tax will see an increase in the threshold where taxes start (doubling the threshold were the 5% tax starts).

The 25% reduction in property tax and doubling of the interest and dividend tax exemption is a major benefit for hard working granite staters.

Of course, nothing comes for free.

After this bill, there still will be no income or sales taxes in NH. Current taxes on passive income include interest, dividends and distributions. Rep Ames bill adds capital gains as the only major form of passive income (i,e, largely earned as a return on money rather than that earned through work that generates a W2). At present, high income individuals and corporations know how to steer their income toward the no tax capital gains and away from interest or dividends. This takes away the ability to play games.

The counter argument that the bill makes the state the winner when a venture succeeds and pay no cost when the venture fails is not true. Capital losses are used to offset wins. If the venturer has no offsetting win, it is possible to sell them to somebody who does.

In addition, this bill provides additional funding for schools even with the lowering of the statewide property tax. After average property tax increases of 31% over the past nine years, this average reduction of 5-8% for a typical household should lead to lots of cheers, particularly among those who own property.

The 5% capital gains rate would still be the lowest of any New England state.

Bradford Keith
- Lyme

Fri, 05/10/2019 - 3:45pm

I wish the State would take a hard look at basic principles of the "Ad Valorem" property tax model and recognize how we have eroded the "fairness" at the core of this model by the mandated discounts we grant property owners. Do we really need to give our large property owners (top 20%) a 97-99% discount to encourage them not to develop or sell their land to developers? Yes, that is what our CU law does. If we limited that discount to 20-25% that would amount to the same additional tax revenue this capital gains idea would and it would flow to our poorest property value towns because that it a big reason their property values are sooooo low.

Frank Marchese
- Salem

Fri, 03/15/2019 - 5:11pm

No this is a tax on people that have used there hard earned money for investing.

Matt Towne
- Barrington

Fri, 03/29/2019 - 5:08pm

I am strongly in favor of the initiation of the capital gains tax. The reality is that the current method of funding schools with property taxes is unsustainable. We have not been compliant with either the Claremont 1 or the Clairmont 2 decision since they were mandated by the courts decades ago. Some property poor towns are in danger of closing their schools and are already cutting essential programs with class sizes rising. While I understand the ethic of "no new taxes" the reality MUST be considered. Philosophically I don't have an issue of implementing the capital gains tax since it taxes those who earn wealth on the labors of others. And I hasten to point out that I was one of those who did well by having others work for me. To simply say NO does not address the problem. Keno originally was thought to be able to fund all day kindergarten but it has not worked out that way. Therefore the decision to 'delink' the kindergarten from keno and find a stable funding mechanism was made. If this does not happen, do not complain about your property taxes.

Tom Ploszaj
- Center Harbor

Fri, 03/15/2019 - 2:15pm

No. I would reconsider if there is data correlating that increase funding to schools or local governments has increase learning skills will lower property taxes. How about a tax on capital gains where the revenue is distributed as a direct payment proportional to the percent of school/property taxes paid by property owners whom are the ones (not schools/towns) mostly affected by taxing? ( LOL, yeah, right, didn't think so. )

Joan Ogg
- BOW

Sun, 03/10/2019 - 10:57pm

Absolutely not...this is penalizing me for investing long term for my retirement years. I have already paid into school funding and now should be able to enjoy my retirement without being taxed to the hilt. My vote is definitely a NO

Related Bill

HB 686 (2019)
Bill Status: In Committee
Hearing date: Jan 29, 2019

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