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Two bills that would raise taxes for Vermont’s wealthiest residents are being discussed in Montpelier.
H.827 would add to the tax liability of people who have $10 million in assets.
H.828 would create a 3 percent personal income tax surcharge on income over $500,000.
A large group of local organizations that includes the 13,000-strong teachers’ union Vermont-NEA is advocating for the bills, which were both sponsored by Rep. Emilie Kornheiser (D-Brattleboro), chair of the tax-writing House Ways and Means Committee.
The group, called
Fund Vermont’s Future, says the measures would generate needed revenue and address growing inequality.
“Our economy is not working for a lot of people in Vermont right now,” Anika Heilweil, the group’s campaign manager, told the Senate Finance Committee on Tuesday. Heilweil, who works for the
Public Assets Institute research organization, said that in 2022, median income, adjusted for inflation, fell for middle-income households.
According to Public Assets, the top 1 percent of income tax filers in Vermont now make, on average, $1.4 million a year — or 20 times the average income of the other 99 percent, which is $69,000.
While Vermont has a relatively progressive tax system, Heilweil said, the wealthiest Vermonters benefit the most from recent federal tax breaks. And she noted that Vermont's sales and excise taxes disproportionately burden lower-income Vermonters, because they are not adjusted for income. Property taxes are not fully adjusted to reflect income.
Sen. Kesha Ram Hinsdale (D-Chittenden-Southeast), a member of the Senate Finance committee, said after Heilweil's presentation on Tuesday that it would make more sense for the committee to lower the property tax for 99 percent of Vermonters than to raise the income tax for the wealthiest 1 percent.
"I think we'd be punishing the
relatively few high income earners who choose to claim themselves as Vermonters," she said of the income tax surcharge. "It's becoming easier and easier to move your residency to Florida or manipulate your income."
The legislature’s Joint Fiscal Office has estimated that the 3 percent income surcharge would generate $71 million per year. The office hasn’t yet released a revenue estimate for the other measure, which would tax unrealized capital gains — assets that have appreciated but haven’t been sold.
According to a report from the office of the Legislative Council, about 1,000 tax returns reporting an adjusted gross income of $1 million or more were filed in 2022. Those filers earned 11 percent of the adjusted gross income in Vermont, and paid 20 percent of all the personal income tax that year.
House Ways and Means Committee members have questioned whether raising taxes would prompt wealthier Vermonters to move to a lower-tax state, such as Florida. Joyce Manchester, a senior economist at the Joint Fiscal Office, has testified that research shows people of retirement age and those living on investment income are more likely to relocate as a result of taxes.
Heilweil disagrees. She said in an interview on Tuesday that high earners are more likely than the general population to own businesses that can’t easily be moved. “This means wealthy individuals often can’t leave their state of residence without experiencing a reduction in income,” she said.
Nationally, the evidence on the issue of tax-related flight is murky. A study last fall from the nonprofit Tax Foundation, which describes itself as nonpartisan, said there’s evidence of a strong connection between state tax competitiveness and migration.
Kornheiser plans to hear more testimony on the proposals in House Ways and Means on February 1 and has invited Cristobal Young, a sociology researcher with Cornell University who wrote a book debunking the idea of millionaire tax flight, to testify.
Members of the Senate Finance Committee, too, will have a chance to discuss the measures at length in coming weeks.
“We will get into the weeds,” committee chair Sen. Ann Cummings (D-Washington) said on Tuesday.