Since 2021, half of U.S. states have cut personal income taxes. Only three states—Massachusetts, New York, and California—raised them. Guess how those three states are doing now?
All are shedding population and tax revenue.
In Massachusetts, state revenues fell for seven straight months through February. In January, Gov. Maura Healey announced $375 million in budget cuts to begin covering a projected $1 billion revenue shortfall. And don’t forget the historic population decline as residents flee to lower-cost states.
In New York, Gov. Kathy Hochul’s proposed budget fills a $4.3 billion deficit even as it projects deficits of $9.9 billion over the next four years. She proposes a $6 billion, 4.5 percent spending increase, and still projects future deficits. Last year, New York lost 112,000 residents.
California is even worse off. Facing a stunning $73 billion budget deficit, lawmakers last week voted to trim spending by $17 million, just for a start. California lost 75,000 residents last year after losing about half a million from April 2020 to July 2022.
Yet advocates of an aggressive and lavishly funded welfare state regularly hold up those states as ideals of good governance.
New Hampshire, we’re regularly told, is falling behind more enlightened states like Massachusetts, New York, and California because our taxes and spending are far too low.
The opposite is true, though. New Hampshire’s economy and people are thriving precisely because of our low-tax, low-spending culture that values self-reliance and personal responsibility over government dependency.
For starters, New Hampshire’s tax revenue this fiscal year is up, not down. State revenue through March is up $130 million over the same period during the last fiscal year.
Business tax revenues are down by $27 million compared to the same period last year. But that’s not because of business tax cuts, as some have suggested. (Business tax revenues have surged throughout the years of state business tax cuts.)
Businesses have to pay taxes quarterly, and those payments are based on what they estimate they’ll owe by the end of the year. If a business winds up overpaying, it used to be able to claim the entire overpayment as a credit toward the next year’s tax bill. Starting in 2023, legislators capped overpayment credits at 500 percent of the year’s tax bill. Anything over that would have to be refunded to the business.
Those overpayment refunds account for 46.4 percent of all business tax refunds so far this fiscal year, or $60.3 million. That’s more than double the $27 million by which business tax revenues have fallen below the previous year.
So it’s likely that the forced refunds are the cause of this year’s drop in business tax revenues. Those revenues are $27 million below the prior year but only $5.6 million below this year’s budget. Legislators clearly anticipated a drop in business tax revenue caused by the forced rebates.
New Hampshire’s revenues are very stable compared to New York’s, Massachusetts’, and California’s. That’s by design. Instead of relying heavily on personal income taxes and consumption taxes, New Hampshire relies on tax collections from business, property, insurance, real estate transactions, and alcohol and tobacco.
Our tax structure keeps spending relatively constrained and forces state government to operate more efficiently, which is why the state ranks as No. 1 in the nation for taxpayer return on investment (ROI) and has for years, in WalletHub’s annual survey. The site also ranks New Hampshire sixth in overall government services.
For government services, effectiveness, and value—not total spending—are the metrics that ought to matter. Keeping taxes low forces the state to do more with less.
Progressives don’t understand that the better measure of success for a government program is not how much it spends, but how well it spends. New Hampshire spends its money very well, at least relative to other states, because it has to get more out of every taxpayer dollar.
This doesn’t mean that New Hampshire doesn’t spend. Revenues for the current two-year state budget were projected to be $868.7 million, higher than the previous state budget. That fueled record state spending. The 2024-25 budget is 16 percent bigger than the 2023-24 budget. New Hampshire lawmakers definitely know how to spend when they have money sitting around.
The difference between New Hampshire and the profligate states of Massachusetts, New York, and California is that New Hampshire lawmakers lack the revenue-raising tools their counterparts in those big-spending states have. Without an income tax, New Hampshire legislators can’t simply “raise taxes on the rich” whenever they want to spend more money. Without a sales tax, they can’t raise hundreds of millions of additional dollars by nudging the consumption tax rate up a bit (for the children, of course).
All four states in this discussion are required by their constitutions to have balanced budgets. But only New Hampshire regularly avoids the drama of huge spending binges followed by huge budget cuts because only New Hampshire has a tax system designed to minimize government revenue and maximize economic growth.
In contrast with many other states, New Hampshire’s tax structure is well-suited to promote economic growth. It incorporates many features recommended by the Organization for Economic Cooperation and Development (OECD) for generating economic growth, including low corporate and personal income taxes.
Though progressives say otherwise, tax increases do reduce GDP.
Former Gov. Mel Thomson’s famous saying that low taxes are the result of low spending is true, generally speaking. But it’s also true that keeping taxes low discourages overspending. New Hampshire does this pretty well.
One question to ask yourself on Tax Day is whether you’d rather live in a state that overtaxes you to build a lavish welfare state and wastes billions of dollars in the process or whether you’d rather live in a state that taxes you less but wastes relatively little and provides high-quality government services in exchange for what it takes.
That ought to be an easy answer.
