The Hippo


Jul 20, 2019








Mixed bag
How the GOP tax bills will affect N.H. taxpayers

By Ryan Lessard

 Republicans in Congress have passed tax reform bills in the U.S. House and Senate, and a local economist says New Hampshire — a relatively high-income state — will experience a lot of benefits from tax cuts at the upper end of the income distribution, and some benefits for lower-income individuals as well. But the roughly 80,000 to 100,000 residents who work in Massachusetts as well as college graduates are among those who will lose some of their existing benefits.

Wealthy population
While major population centers like Manchester still struggle with pockets of poverty, the state has one of the lowest poverty rates in the country, according to Greg Bird, an economist with the New Hampshire Center for Public Policy Studies.
“Relative to other states, we’re less poor and higher-income,” Bird said.
In fact, the Granite State has the highest median income in the country ($76,260), according to 2016 U.S. Census data. 
As a result, the vast majority of federal income taxes, in dollars, paid to the government comes from the richest Granite Staters. To put it in perspective, Bird said the wealthiest 1 percent of the state population paid 28 percent of total federal income taxes in 2015, according to IRS data. And the bottom 31 percent of all taxpayers sent 1 percent of the $7 billion the government received. To put it another way, about 70 to 75 percent of all federal income taxes are paid by people making $100,000 per year or more.
The differences between the House and Senate bills make it difficult to definitively say who stands to benefit the most, Bird said. But in New Hampshire, at least, it seems like the top income earners will be happy with the deal for the most part.
“Because most of the federal income taxes New Hampshire residents pay are by wealthy individuals … it will likely help out the folks that pay the bulk of the taxes, which just happens to be the wealthy,” Bird said.
Some of these tax breaks come in the form of lowered tax rates. The House version takes the existing seven tax brackets (10, 15, 25, 28, 33, 35 and 39.6 percent) and reduces them to four, while the Senate version lowers most of the rates in the existing seven brackets. In the Senate bill, the top rate goes down to 38.5 percent. The House bill keeps the top rate at 39.6 percent but raises the income threshold to $500,000 for individuals and $1 million for married couples.
Other benefits for the wealthy come from changes with the estate tax and the alternative minimum tax. Bird said the House bill would completely eliminate the estate tax, a tax on inheritance of a certain size. The Senate increases the amount exempt. Right now assets under $5 million are exempt, Bird said.
For New Hampshire, this would have very little impact; only 142 federal estate taxes were filed in the state in 2015.
“Not many New Hampshire residents pay the federal estate tax, primarily because the exemption is quite high,” Bird said. “We’re talking about a very, very small portion of the population. … This sort of tax relief has been marketed to really assist the middle-income folks, so it’s sort of puzzling that this provision is in there, because it really only impacts the very, very well-off.”
The House would eliminate the alternative minimum tax, which is in place to ensure the super-wealthy aren’t able to use the tax code to dramatically reduce their tax liability, in some cases to zero. The Senate version raises the exemption. Either way, it would mean the upper-income folks in the state would likely pay less in taxes.
“They would be able to minimize their tax liability much more than they are able to now under the current regime,” Bird said.
Property and cross-border work
New Hampshire is spared one of the more controversial elements of these bills, which would change the deductions for state and local income taxes (SALT). The bills eliminate the SALT deductions, but since there is no income tax in the state, that has no effect here. However, the property tax deductions are capped at $10,000. 
Since most Granite Staters claim somewhere around $6,000 to $8,000 per return, this is also not going to affect many residents. It is going to affect folks who make $500,000 or more, roughly, since they tend to claim around $22,000.
“So that would be a hit on the upper end of the income distribution,” Bird said.
Another hit on the upper end would be a House plan to cap mortgage interest deductions at $500,000. Right now, the cap is at $1 million mortgages. The Senate would keep that the same.
One group of residents who can still be hurt by the elimination of the SALT deductions are folks who live in New Hampshire but work in a state like Massachusetts, which does have local income taxes. 
“Which makes working in Massachusetts that much less enviable. Whether it’s enough to make them come back and work in New Hampshire, that’s probably a stretch,” Bird said.
He said they make up roughly 20 percent of New Hampshire’s working population.
College grads
Some of the benefits enjoyed by people with student debt and who are in grad school might go away with the proposed tax reforms. 
Bird said that could be bad news for a chunk of the population.
“New Hampshire tends to be the state where young people carry some of the largest student loan debts in the country,” he said.
The House bill would get rid of the paid student loan interest tax credit, something Bird thinks is probably a big help to many students or former students when it comes time to file for taxes. The Senate version would retain the tax credit.
Another proposal in the House bill would classify graduate student tuition waivers, by which they get often free tuition while earning their Ph.D. in exchange for teaching or research work, as taxable income. Since tuition is usually in the tens of thousands of dollars each year, that could dramatically increase their tax liability and potentially have a cooling effect on new students even pursuing grad school.
“I would think that would have a significant impact,” Bird said.
New Hampshire has research institutions like Dartmouth College and the University of New Hampshire that could see enrollment impacted by this change.
Low-income residents
Under the 2017 tax rates, the bottom bracket paid 10 percent if they earned $0 to $9,325. Under the Senate plan, the bottom rate would stay the same but the threshold will stretch to $9,525. 
The next bracket up today jumps to 15 percent for those making $9,325 to $37,950. The Senate would lower the rate to 12 percent for those paying $9,525 to $38,700. And people who make more than that up to $70,000 will pay 22 percent under its plan.
The House would make anyone earning $12,000 or less exempt from paying any federal taxes, and those up to $45,000 will be charged 12 percent. From there, most middle income earners up to $200,000 will pay 25 percent.
Both the House and Senate bills would nearly double the standard deduction for individual and married filers, from about $6,000 to $12,000 for individuals and from $12,000 to $24,000 for married couples. 
Bird said that since most people in the state who earn less than $100,000 choose to take advantage of the standard deduction, that could help a lot of Granite Staters.
“If you’re on the lower end [of the income distribution] and you’re not itemizing, then that definitely should provide some assistance to you,” Bird said.

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