Vermont Legislature SmartTranscripts:

[Rep. Emilie Kornheiser (Chair)]: Here we are in the ways of means. Today is April 15, tax day, to all of them celebrate. It's 02/20. I'm gonna make the joke all day. Fortunately, this might go live. Guys, it's just take it while you can get it. Okay. So we shifted the schedule slightly so that we can do the fiscal note from September now. And then we're gonna go back to our committee bill to hear from Jake Feld from the tax department. And then tomorrow, we're gonna go back to our committee bill about the income taxes. And then at eleven we're gonna go to any amendments to nine fifty five. So we are on September now, fiscal note with Julia. Floor is yours. Thank you. Julia Rutland, JFO.

[Julia Rutland (Joint Fiscal Office)]: The fiscal note may be posted on the committee Is posted on the committee page under my name. Thank you. And I will go ahead and share my screen. So this was published earlier this week. We worked on it over the weekend, which is why you did not have it on Friday. I know I'm presenting it, but it was really a team effort from multiple people in the office. So they deserve just as much credit, especially Ezra and Ted. So you want me to walk through the fiscal note in its entirety, or do you want to start big picture, and then

[Rep. Carol Ode (Member)]: we can take it from there?

[Julia Rutland (Joint Fiscal Office)]: Let's start big picture. I think we're pretty familiar with the So yes. So you're very familiar with the bill. I'm not going do a bill summary unless it's helpful. I'll focus really on the fiscal impact. Big picture, as you all know, as we spoke about, throughout the session thus far, the overall fiscal impact of the bill is unclear as impacts depend on outstanding policy decisions at both the state and local levels. We have sort of in the background and details section of the fiscal note, we've outlined most of the sections in the bill and talked about potential fiscal implications within each section. I will note the one specific fiscal impact related to FY 'twenty seven relates to the appropriations. This was laid out of appropriations yesterday with no changes to this. So the bill would appropriate $75,000 from the general fund to JFO for the pre case study, if you'll recall. This is the House bill. The House budget, as it was voted out, had about 130,000 on the bottom line. So this can be absorbed within the unobligated funds from the House budget. And it also shifts or amends the uses of the Act 73 appropriation and dedicates those funds to the different grant programs established in the bill related to the CSIS and the city committees. So this table here really just captures how the different amounts have been funded through existing appropriations. So you'll recall that this is included in the big bill, and this is really saying of that money that was amended in the big bill in section C103, how are the uses changed? And there's also still 60,000 from the Ed Fund that was related to the BOCES bill. There were those BOCES startup grants, but because there's only one BOCES that was formed, there's still a remaining sum of 60,000 that would be making up part of that 90,000. And then the one appropriation. So I really defer to you all in terms of how I

[Rep. Carol Ode (Member)]: can be of help with the proposal out.

[Rep. Charles Kimbell (Ranking Member)]: I know that a lot of the big picture questions, you can't model out as a feature. I think we're all pretty familiar with the appropriations in it. So I'd say, does anyone have any questions?

[Julia Rutland (Joint Fiscal Office)]: I think it would be helpful if you could just review some of the outstanding policy decisions that are going to I'm not saying what you think either way, but what are the decisions that are upcoming that may or may not impact fiscal impact itself? Absolutely. So I would say all of the funding decisions related to school construction, related to transportation, all of the rulemaking pieces, the definition of small and sparse by necessity. I'm really talking off the top of my head. We can also go through We've outlined some of them. How CSES result in efficiencies or additional costs, if there are efficiencies or costs gained from the study committees and if they result in mergers. Just trying to think through some of these here. Of course, pre K and how pre K is financed. Data collection, if more. So there is the student profile form and also the collection of data from students who receive tuition. So if that is capturing more students than are currently counted in our current state under the current funding formula, that would be shifting tax capacity. Under the future state, that would be assigning more dollars to those students, all else equal. Some of these reflect how school districts or schools will respond. So for instance, with the tuition fee prohibition, if that results in schools increasing their tuition because they can no longer charge for that topping off, of course And it doesn't decrease the number of students, that of course would increase costs for the Ed Fund. I don't know if that will happen. We spoke about small and sparse rule making. AOE and state board, so dependent on the reserve guidance, dependent on policy decisions around transportation. Regional assessment districts. If regional assessment districts increase the frequency of reappraisals, additional costs may occur. If they increase efficiency, costs may decrease. There's also the payment, the state payment of full appraisals. That's that lesser of test. It's the $66 per parcel or the commissioner's estimate of the full reappraisal, whichever is less. And we know that this would be staggered over six years. We know it'd be ongoing. And for context in FY27, there were 340,280 parcels. So that multiplied by 66 gets you to 22,500,000 over six years. The property tax classifications, we have the data yet. So we don't know how the grand list is going to shake out. One of the big outstanding policy decisions there are the tax rate multipliers. With respect to school construction, so their outstanding policy and funding decisions, this would be related to general allocation debt service, as well as how that may impact the cash fund and additional funding streams for school construction if they will be realized. Costs associated with the AOE school construction division is an outstanding question. I'm really trying to hit some of the highlights. This is not exhaustive. This is me talking off the top of my head. The legacy debt aid program, this is that where it's 100% categorical aid for debt incurred prior to 12/31/2025. We know that currently exists in school district budgets. So one of the big outstanding decisions is what is the funding source of that? If it is education funds, it will be neutral, because those costs already exist within the education fund. It's moving into a new financing system. If the funding source is not the education fund but a different fund, then it'll be an increased obligation on that fund and a decreased obligation on the ed fund. On the legacy debt, though, if it's coming out of the Ed Fund, but we're somehow absolving the districts of having to raise that through additional taxes, wouldn't it decrease the revenue that's going into the Ed Fund? No, because we move away from the district level and we look at it at the state level, I think the point that you're making, which is a really interesting one, is if we were to not be moving to a totally new financing system and this legacy debt aid program were to exist in our current financing structure, it would be shifting the tax burden of districts. But because at the same time that this is going into effect, we're getting rid of those locally adjusted property tax rates, taxes are going to be shifting anyways. So we can attribute this to that. Sorry. Oh, it's a great question.

[Rep. Charles Kimbell (Ranking Member)]: I think Christian just asked

[Rep. Edward "Teddy" Waszazak (Member)]: me an exact same question, so thank you.

[Julia Rutland (Joint Fiscal Office)]: One of the things I love about transitions and hate about transitions is all the mistakes and dead animals come to the surface every time you do it. Are there other things that in your review of the finance and the structure that we ought to be paying attention to next year or anticipating? I'm not ready to speak to that today. I will say that we staff have an ongoing document of just technical pieces and policy choices that are on our radar as if this were to come into effect, what are the different pieces? I would be happy to come back when it has more time to prepare and talk about that. Comments like that make me so impressed with our staff, Madam Chair. Very forward looking and very cautious. I appreciate that. Thank you. Thank you, Julia.

[Rep. Charles Kimbell (Ranking Member)]: No one has any other questions? Okay, thanks. Great.

[Rep. Emilie Kornheiser (Chair)]: We're going to put away $9.55 for the day. We're going to go back to our committee bill about income tax allowance. Tomorrow, we're going to pick that committee bill up again, and then we're going to go back to 09:55.

[Rep. Charles Kimbell (Ranking Member)]: Anyone wants to open the third window. Are very welcome to. The

[Rep. Edward "Teddy" Waszazak (Member)]: middle guy. Okay.

[Rep. Charles Kimbell (Ranking Member)]: Jake, the floor is yours whenever you want to join us.

[Rep. Emilie Kornheiser (Chair)]: We just had our first conversation about the bill this morning, so

[Rep. Charles Kimbell (Ranking Member)]: we are learning with you.

[Jake Feldman (Vermont Department of Taxes)]: Was Jake Yeah. Feldman, tax department. I was watching on YouTube, Kirby and Pat did great. I think that my presentation is going to complement it to a large extent. Let's see, I'm going to share my screen. I think source of a PDF of this under my name on the website.

[Rep. Emilie Kornheiser (Chair)]: Representative Ode, do you have a thought while they could bring up

[Rep. Carol Ode (Member)]: a stipulation? I was thinking about the past and Jake, and I was thinking at Trump, and he probably made some comments about it, quantifying what we they do for older Bahamas, I don't know that. Do you ever put a study together about these things?

[Jake Feldman (Vermont Department of Taxes)]: I don't think so. Do you mean in terms of acts, credits and

[Rep. Carol Ode (Member)]: All things.

[Jake Feldman (Vermont Department of Taxes)]: Yeah, don't know of a study you've done on that. Maybe that would be in the ten year? I'm not sure. Gloragers. Okay, great. Glad to be here talking about income taxes. Maybe this is going to be a little bit less complicated than the second homes tax stuff. I have basically three main things to talk about. The first one is sort of related, but I think it's important to talk about because there's some using information out there. But I want to talk about who is benefiting from the tax changes and the one big OBD VA or HR one or whatever you call it, the recent federal tax reform. Pat did a nice job graphically with the second thing, and I wanna show some numbers about how much does a high income filer pay in Vermont right now compared to what they pay in another state, and how much would they pay under the proposal. And I want to talk about the wealth proceeds or investment proceeds tax and what types of income would be taxed. So, yeah, that's the plan. The information I'm about to tell you is a little bit different than I think what a lot of us are hearing. Maybe even in my own Facebook feed, I'm hearing some different stuff than this. But generally, this is very important. The OBBBA, what it did is it extended some tax cuts that were passed in 2017 in the first Trump administration. In the first Trump administration, they passed this jail, which lowered all the marginal rates and did a whole bunch of other things. And at that time, high income filers got a pretty big break. That was set to expire in 2025. The OBBA said, Nope, we're gonna keep going with this. So that, when you hear, and I'm hearing it too in my Facebook, that high income Vermonters are getting 60,000 or 50 whatever thousand off, they're not. What's happening is they're paying about the same as they have been paying for the past eight years. 2026 is gonna be just the same. The 60,000 or whatever the number is that we're all hearing, what that is, is if the tax cuts in the TCJA had been allowed to expire, their taxes would have gone up, but those tax cuts weren't allowed to expire, they were extended, so it's kind of business as usual. So that's an important point. And most of the things in the OBBBA actually were targeted towards lower and middle income people. What's in the personal income tax? Personal income. Yep. And then on corporate, there's more complicated things that you guys have heard about, obviously. But on personal income, there's no tax on tips. We all heard a lot about that. It's for people with AGI up to $150,000 if they're single or $300,000 if they're married, and then there's a phase out, meaning the benefit is diminished as income increases. There's a new deduction on overtime with the same thresholds, and then it phases out. There's a new sort of odd auto loan interest deduction with slightly lower thresholds. They tried to kind of exempt Social Security, but they couldn't really figure out how to do it. So what they did was they made a figure standard deduction for seniors. It's an extra $6,000 I believe. And that is for single people up to 75 or 150 if they're married, that phases out. There's a child independent care credit, which is going to flow through to Vermont and cost us an extra million dollars. Pat has a great graph on what they did there. But that basically increases how much of your expenses are eligible. And it helps if you're single and your AGI is under 100, or if you're married and AGI is under 150. And then this one goes a little higher. They did increase the state and local tax deduction for people who itemize their deductions. And it it it was increased from 10 to 40,000. It helps you if your modified AGI is up to 500,000, and then it phases out over the next 100,000 income. So if you're making a million dollars a year of income in Vermont, this one provision doesn't help you because you're beyond the phase out slope. And then there's some changes to charitable contributions, which is actually what I think is a really great change, where if you don't itemize, can now some charitable contributions, which Vermont does and has been doing since 2018. And then for filers who do itemize, it got a little bit tighter, so it wasn't an expansion. But really important, I'll say it just one more time, is that there's no personal income tax cut for high income Vermonters in this bill, in this federal bill. When they passed the TCJA in 2017, Vermont responded, and Vermont raised taxes on high income people at that time. I could get into that if you want me to, but it happened eight years ago. And so that is kind of what Julie would call a level setting on this one.

[Rep. Carolyn Branagan (Member)]: Could you just focus on that

[Jake Feldman (Vermont Department of Taxes)]: for a second? Sure. Thanks.

[Rep. Carolyn Branagan (Member)]: In 2018, that's when we decoupled taxable income at the federal level to adjusted gross income and set our tax brackets on that. So because before the marginal tax rate based on taxable income was higher, and so we dropped to 8.75, but on a bigger number on the adjusted gross income. I remember the positioning that that had, and it was a positive, but it actually might have been a higher tax rate,

[Jake Feldman (Vermont Department of Taxes)]: is what I just heard you say. Yeah, we actually had five brackets back in 2017 and prior, and we collapsed the top two. I think the highest was 8.95, maybe. And then the top two were collapsed. And so the top new one was 8.75, but it started at a lower spot. And then also, Vermont at that time got rid of itemized deductions, turned charitable contributions into a credit and capped how much you could take on charitable contributions and some other things that the net effect was it made our overall system more progressive and it was an increase on high income Vermonters.

[Rep. Edward "Teddy" Waszazak (Member)]: So the fact remains though, that if the OBVA had not passed, those twenty seventeen tax cuts to the wealthiest would have expired, and in this current year, they would have owed more in tax than they now have to pay, right? That is true. Right, so regardless, because of this bill, the wealthiest Vermonters are still paying less of federal tax than they would have had this bill not passed.

[Jake Feldman (Vermont Department of Taxes)]: That's a good way of saying.

[Rep. Edward "Teddy" Waszazak (Member)]: So whether we call it a cut or not, it's kind of semantic because at the end of the day, this bill is allowing those folks to pay as in tax. While I know that's not, this isn't part of the tax thing, while working class folks are losing healthcare subsidies and access to food assistance and challenges to life. So those folks at the top are getting a tax rate while our most vulnerable neighbors are struggling to put food out of pain.

[Jake Feldman (Vermont Department of Taxes)]: Yeah, they're getting a tax rate compared to if the tax cuts have been allowed to expire. But I think the perception that I'm getting from what I see in the news is like, millionaire person goes to file their twenty twenty five taxes and all of a sudden it's like $60,000 less than they thought. And I just wanna say that that's not what's happening.

[Rep. Edward "Teddy" Waszazak (Member)]: But they're paying $60,000 on average less than they would have had this bill passed.

[Jake Feldman (Vermont Department of Taxes)]: Yes, but they're not paying 60,000 less than the years of sports.

[Rep. Emilie Kornheiser (Chair)]: Thank you. You've both established the

[Rep. Charles Kimbell (Ranking Member)]: way we see the

[Rep. Mark Higley (Member)]: Hey, we're

[Rep. Edward "Teddy" Waszazak (Member)]: excellent. Thank you.

[Rep. Mark Higley (Member)]: Very constructive. Great, that's the hardest slide maybe.

[Jake Feldman (Vermont Department of Taxes)]: Okay. So this is putting some numbers to Pat's excellent graphs. I built out a tax year 2026 income tax calculator that can tell you what some of these taxes would be in any state. It's kind of like a widget. I'll consent it to you. It's fun. But anyway, if you make a million dollars right now in Vermont, you pay $79,000 which is sixth highest, basically, and if you Under the proposal, we would be number one. And that's the part of the bill with a 13.3% new highest top marginal rate. I can't account for all the weird personal exemption, standard deduction, what if somebody does this or that? I can't do that. So it's really only looking at the marginal rates, and it's assuming they're married filing joint. If you make 10,000,000, Vermont would be number one there too. But I wanna point out kind of at the bottom of that, and this is another important point, If you make $10,000,000, you are paying more in Vermont right now than Massachusetts. And Massachusetts just did a millionaire's tax a few years ago, right?

[Rep. Charles Kimbell (Ranking Member)]: I mean, they also have a very complicated constitutional system that keeps their income taxes very constrained. What was that?

[Rep. Emilie Kornheiser (Chair)]: They have a very complicated constitutional provision that keeps their taxes very constrained.

[Rep. Edward "Teddy" Waszazak (Member)]: Income taxes? Income taxes. So

[Rep. Emilie Kornheiser (Chair)]: the millionaires tax they passed was

[Rep. Charles Kimbell (Ranking Member)]: a constitutional amendment because they can't They have a flat tax.

[Jake Feldman (Vermont Department of Taxes)]: Right. So yes, so they had 5% flat tax. And then they got citizens something or other make it jumped to 9% of the million dollars. And so people say, Well, Massachusetts just did that, so Vermont can do the same. My point is Vermont's taxes for somebody making $10,000,000 are already higher than Massachusetts. And that's because their 9% doesn't start till over a million dollar income, whereas our 8.75 starts at $3.12. Do a little math and imagine two lines going out on a graph, and you'd have to get to about $11,000,000 of income for them to cross each other. Here are top marginal rates by state. California is currently number one at 13.3%. Think this may maybe the bill is intentionally trying to be the same, but it would it would make Vermont the same as California, but our starting point would be quite a bit lower. Okay. So that's like I think that's everything I have to say about the income tax feedback.

[Rep. Emilie Kornheiser (Chair)]: Any other questions for Jake about the income tax?

[Rep. Edward "Teddy" Waszazak (Member)]: I would just say that I have some data, and I think we're hearing You're coming in smart. They have some data that shows that the wealthiest folks did get an extended tax break. With the OPBA, they don't have to pay that tax because those things were extended. Even on top of that, I test data that shows that they're still paying additional less tax than they would have had to. So you might wanna pay attention tomorrow to some of what they might present.

[Jake Feldman (Vermont Department of Taxes)]: Yeah, there are provisions that do help them federally, like fed qualified small business stock and probably some other things that really aren't on my radar. But yeah, I believe that.

[Rep. Carolyn Branagan (Member)]: In that, how many tax filers in Vermont qualify at the five eighty six and above?

[Jake Feldman (Vermont Department of Taxes)]: Do you know? Well, the five eighty six corresponds to our top 1%, Is that what you need?

[Rep. Carolyn Branagan (Member)]: One per but how many people is that? Is it

[Jake Feldman (Vermont Department of Taxes)]: about 3,000 kilometers per Yeah. And I will say, I know you have Crystal Ball Young coming in tomorrow from Cornell, and so the question is, well, what's the risk of all this? What if Vermont is number one? The risk is potentially a few people leaving, a handful, not a lot. A few people will actually pack up their stuff and go to New Hampshire or Florida to change residency. But what's really important is I hope the committee can accept, when you tax something more, you get less of it. If you tax vape pens for sick smoking, you get less vape pens, you tax it more. If you tax second homes more, you get less second homes. If you tax carbon more, you get less carbon. If you tax income more, you get less. No one's talking about taxing carbon. They used to. If you tax income more, you get less income. And I know you heard yesterday about how to set up a trust in another state to avoid income taxes. So what people will do is they will take measures to pay less than income taxes. Do you follow baseball? There's a baseball player named Cholhei Ohtani on the Dodgers.

[Rep. Carolyn Branagan (Member)]: Yeah, that's

[Jake Feldman (Vermont Department of Taxes)]: really good. Makes 70,000,000 a year. It's all deferred until he basically retires, at which point he may live in Luxembourg.

[Rep. Emilie Kornheiser (Chair)]: Is that true for all of those contracts? No. He just has a special weird deal. Do they have to put it in escrow or something? How does he even know that he'll still don't know.

[Rep. Charles Kimbell (Ranking Member)]: I'm

[Rep. Mark Higley (Member)]: I'm not sure.

[Rep. Emilie Kornheiser (Chair)]: I'm sorry, that was so distractive of me.

[Jake Feldman (Vermont Department of Taxes)]: No, it's fine.

[Rep. Emilie Kornheiser (Chair)]: I'm apologizing to myself, actually.

[Jake Feldman (Vermont Department of Taxes)]: Thank you for

[Rep. Charles Kimbell (Ranking Member)]: I'm not apologizing to Jake. Joe.

[Rep. James Masland (Member)]: Yeah, thank you. I lost track in New Hampshire. New Hampshire a few years ago had a dividend tax that was actually fairly substantial. It started at one point, it started with basically zero in face time. And called, do you know where the inhabitant where those taxes are in New Hampshire and New Hampshire?

[Rep. Charles Kimbell (Ranking Member)]: I think it

[Jake Feldman (Vermont Department of Taxes)]: was interest and dividends. That's right. I think they got rid of it. Yeah. Yeah.

[Rep. James Masland (Member)]: They they phased it out. Yeah.

[Rep. Emilie Kornheiser (Chair)]: They don't even phase things in New Hampshire.

[Rep. James Masland (Member)]: It's true. Well, the comparison was really striking. It was productive. If they phased it out, it's gone, okay, New Hampshire figured out some other way.

[Jake Feldman (Vermont Department of Taxes)]: Yeah, but I mean, suppose you have the Shohei Otani at Orthopaedic Surgeons at UVMMC. He's great at fixing torn ACLs. And perhaps if the taxes went way up, he would decide, I don't want to work in Vermont. I'm taking home now 5% less of what I used to, and he may go somewhere else. Then the poor UVMC team who pairs things up to get less good surgery.

[Rep. Emilie Kornheiser (Chair)]: Chittenden. Yeah, I've actually

[Rep. Carol Ode (Member)]: been really worried about that too, because specialists, when they go to other states, they have a bigger number of doctors in the specialty, then they can take off more time, it's a humane way of living. We don't have as many patients and it's hard to draw people here, and then they draw the doctors here in specialties and then they have worked a lot more hours because there aren't just many in their practice, which still have a population. So,

[Rep. Emilie Kornheiser (Chair)]: that said, do we know of those 300 filers,

[Rep. Carol Ode (Member)]: how many of them are doctors and specialties? I mean,

[Rep. Emilie Kornheiser (Chair)]: can we look and see that generally to see

[Rep. Carol Ode (Member)]: who will be impacting and then

[Rep. Edward "Teddy" Waszazak (Member)]: work from them?

[Jake Feldman (Vermont Department of Taxes)]: That would be fascinating. On your federal return, you actually have to list your occupation. It's not binding for anything. I don't know if you ever noticed it when you're doing your taxes, I think, I don't know if we get that, but I would like to look at that. But related to your point, and also Rev Kimbell's, it's 3,300 in the top 1%. But in Vermont, it's not the same people year to year. So there is an orthopedic surgeon who makes, whatever, 800,000 a year, but generally in Vermont, high income is a one time event. And in fact, for people who make over $1,000,000 a year, only like 10% of them do it every year. It's usually a one time event, and we covered that in the ten year tax study last time. I think we'll look at it again this summer, too.

[Rep. James Masland (Member)]: Representative Ansell used to refer to this as bumpy. It went up and down. Was, sure enough,

[Rep. Emilie Kornheiser (Chair)]: no. What

[Rep. Charles Kimbell (Ranking Member)]: I found really interesting about this last chart we looked at this morning was knowing that it's different people, that people move above and below the line,

[Rep. Emilie Kornheiser (Chair)]: and knowing how

[Rep. Charles Kimbell (Ranking Member)]: consistent a lot of the numbers in there were.

[Rep. Emilie Kornheiser (Chair)]: That surprised me, given that it

[Rep. Charles Kimbell (Ranking Member)]: is a fairly volatile tax type, and the last five years have been a pale ride.

[Jake Feldman (Vermont Department of Taxes)]: Yeah, the last four or five years, personal income taxes have been great.

[Rep. Charles Kimbell (Ranking Member)]: Obviously, economy is not going in the same direction now that it was. I

[Jake Feldman (Vermont Department of Taxes)]: bring that up because Vermont, we have data, we know that during the pandemic, some high income people moved into the state. And I worry that if they were able to move here during the pandemic, to decide that they live, that they're going to live at their ski house or whatever, that they have more flexibility to move back to wherever they came. Massachusetts has lots of embedded industries, I think, where someone can make a lot of money, I don't know what the embedded industries in Vermont really are. So that's a worry.

[Rep. Mark Higley (Member)]: Another thing, as a Lister, and I think it's even in the Lister Handbook, it goes back to the early 1800s, it was a faculty tax, the tax for the doctors and lawyers and that, that was repealed in 1850. But that was another example of taxing and special assessment on professional skills and entry.

[Rep. Charles Kimbell (Ranking Member)]: I read this paper that I

[Rep. Emilie Kornheiser (Chair)]: think Deb Brighton recommended when I first rang the committee, or maybe I

[Rep. Carol Ode (Member)]: don't remember what it was.

[Rep. Emilie Kornheiser (Chair)]: It was just sort of like the history of Vermont taxation. Very interesting. I will go dig it up and send it around to people. But it sort of talks about how, really, we started with taxing sheep. And then some people had essentially wealth that was not represented by tangible objects like sheep, and we moved more towards land and income. And sort of that, what you're describing is really the first foray into an income tax in New England.

[Rep. Mark Higley (Member)]: I used to tax clocks in New England. Yeah.

[Rep. Emilie Kornheiser (Chair)]: Any show of wealth, right? And we've really moved away from those taxing of sort of wealth to the earned income. And more than just doctors and lawyers, but factory workers, yeah.

[Rep. James Masland (Member)]: There's a chart on the wall at a different town hall that shows everybody in town who had any kind of property, how many milked cows, how many taps them, how many, I mean, was tangible property tax in a sense. Don't know, I'll go for it.

[Rep. Emilie Kornheiser (Chair)]: We're have a go,

[Rep. Charles Kimbell (Ranking Member)]: were wondering. I'm getting back

[Rep. Carol Ode (Member)]: to something that you said. Great. So you, I'm gonna say if I got this right, 10% of all those who are a million dollars or more make

[Rep. Emilie Kornheiser (Chair)]: it yearly.

[Rep. Carol Ode (Member)]: Otherwise, 90% of those who are making over 1,000,000 are only making it one time?

[Jake Feldman (Vermont Department of Taxes)]: I'm sorry, not necessarily one time, just not continuously. There's bar graph in the last ten minute text study where you can see it's around half or just making it one time or maybe a little more. And then you can kind of see the bar height for twice or three times or four times, but it's lower, if that makes sense.

[Rep. Carol Ode (Member)]: So, do you want to is there a caution there? What are the pros and cons of that?

[Jake Feldman (Vermont Department of Taxes)]: The pros and cons, to me, if there's this very high marginal rate, the risk probably is to the 130 or so who make over $1,000,000 year after year. They're probably more likely to do something than the one time event people.

[Rep. Emilie Kornheiser (Chair)]: I'll just go on to

[Jake Feldman (Vermont Department of Taxes)]: I the VIP know Pat and Kirby talked about this this morning. What the committee is looking at is what I accept calls the enhanced wealth investment proceeds tax or wealth proceeds. Basically, capital gains would make up the bulk of it, 69%. And Kirby and Pat talked about what capital gains are. I think this committee knows pretty well. At the federal level, short term gains are taxed like normal income. Long term gains get lower rates based on person's income. The reason they do that is for two reasons: to encourage investment and because there's no you can't bump up your gain based on inflation, so that's why they tax at a lower rate. In Vermont, I'm gonna talk about on my next slide, we tax capital gains normally, but some long term gains are eligible for a 40% exclusion. Dividends are profits distributed to shareholders of corporations. At the federal level, dividends get the same, those same rates as capital gains that I just mentioned. Ordinary dividend through tax, like normal income. All dividends in Vermont are already taxed normally. All our regular rates apply. Rents, royalties, and trusts. What the NIC at the federal level does is it double tax, it's a surtax on passive income for this. And so it takes those that are already taxed normally and it applies an extra 3.8 I think it is, then in Vermont, we're already taxing it normally. Interests, same as the one above. It just adds a surtax, and for mine, it's already taxing interest. And then non qualified annuities are these complicated things. It's like an annuity that you buy with after tax income, like a Roth IRA, and the portion of the gain is already taxed normally, both federally and Vermont. So this is all to say that this money is already taxed. So it's not like the Vermont wealth proceeds or investment proceeds is catching some loophole. It's not about a loophole. It's about a surtax on certain types of income. Quickly, we do have this 40% capital gains inclusion in Vermont, the question is why? Why would Vermont do that? Helpfully, there is a statutory purpose we can look at. It exists to help mitigate the impact of one time realizations in a progressive tax structure. So that's saying, Hey, you've been roasting coffee, building your own business for nine years, you made $75,000 a year for all that time, and then you sell it to a regional fine food distributor for $2,000,000. You sell your coffee roasting business. In the year that you realize that big gain, we're not gonna snag you with our high rates. We're gonna give you an acknowledgment that it is a one time event. So that's why the 40% capital gains exclusion exists. It applies basically to the sale of farms and businesses. And if you're selling a bunch of stock, you're not eligible for that. Oh, I have it right here. Filers can deduct 40% of the gain from assets held longer than three years, except not real estate, not depreciable personal property, and no stocks or bonds. It also can't be more than 40% of federal fed soy income, and also, as of a few years ago, it can't be more than $350,000.

[Rep. Emilie Kornheiser (Chair)]: With respect to this, and I'm not saying we should do this, but I'm just curious, do any states, we have current use, we have a variety of programs that reduce people's tax liabilities. Some of them are on properties that are quite valuable, and when those are sold, let's say someone passes away and they have a $10,000,000 bank loan, Has anyone ever caught any of that?

[Jake Feldman (Vermont Department of Taxes)]: I can't think of anything like that offhand.

[Rep. Emilie Kornheiser (Chair)]: We talked about that you brought a proposal. You you brought a proposal?

[Jake Feldman (Vermont Department of Taxes)]: Very unpopular.

[Rep. Emilie Kornheiser (Chair)]: But that was something that other states too have heard

[Rep. Charles Kimbell (Ranking Member)]: of like that, right? Yes. So

[Jake Feldman (Vermont Department of Taxes)]: that's a tax deferral. That's helping older people stay in their homes. Oregon has a tax deferral program where you're an older person, your kids have moved out, you can stay in your house, you can defer some of the taxes. But then when you sell it or pass away, then the taxes come due. I think it's good, and Maine now has the same thing. In fact, 30 something states have that. But I don't know, to your question about current views, I I don't know if that's was

[Rep. Emilie Kornheiser (Chair)]: trying to think of an example like that, deferred taxes. I do think that's interesting, there are 30 other states. We spent a long time talking about it last year,

[Rep. Charles Kimbell (Ranking Member)]: and none of us liked it. I remember you first told us about it downstairs, I think.

[Rep. Carol Ode (Member)]: This is one of the reasons, mean, people kind of say, what are you doing to help older Vermonters, how are moving this or that part of the population? I think it would be great to have in the tax setting how we're helping different parts of the population, like how we help somebody with children, how we help somebody. This particular kind of thing, how we help people, we're older from moms. I appreciate that. I think

[Rep. Charles Kimbell (Ranking Member)]: we're going down. I know, I'm

[Rep. Emilie Kornheiser (Chair)]: afraid that since I didn't hear yes, we're going to

[Rep. Carol Ode (Member)]: do that, I thought I would will you write it down or

[Rep. Charles Kimbell (Ranking Member)]: something and we can, what will we say? Alright.

[Jake Feldman (Vermont Department of Taxes)]: Okay, so that last slide about the capital gains exclusion, it's pretty important. It's gonna come up again. But first we're gonna go over who's benefiting from those tax changes, the OBBA. Generally, the personal income tax provisions help low and middle income filers. There's not a material change for the high income filers compared to the last eight years. The General Assembly reacted to the TCJA eight years ago by increasing taxes on high income filers in Act 11. We talked about this for a minute. Vermont's income taxes are already among the highest in the country, and the proposal would make us number one. Some maybe high profile filers may actually physically move away, but generally, importantly, if you tax income more, you get less income. If you tax cheap more, you get less cheap. If you tax whatever more, you get less of it. So the surcharge or the investment proceeds tax, it may raise some revenue, but it will cost on the personal income tax side. People will make behavioral responses that will jeopardize the main personal income tax of the general fund. Then we talked about this. The investment proceeds tax would tax an assortment of income streams that are already fully taxed in Vermont, with the exception of that capital gains thing. Long term capital gains would make up a large portion of the tax base for the new surtax while simultaneously getting preferential treatment under Vermont's personal income tax code. And I put a sad face there, because that's super weird, to have in your tax code a place where a type of income gets special favorable treatment, and then another spot where it gets punitive treatment. That's super, super weird.

[Rep. Carolyn Branagan (Member)]: Talking about the 40% exclusion for capital gains.

[Jake Feldman (Vermont Department of Taxes)]: Yeah, so saying you built up your business, you sold your profit grossing business, we're giving you 40% capital gains exclusion. But wait a second, turn the page in your income tax booklet, you owe an extra 4% on that. That is sad face. So, I put her sad face on.

[Rep. Carol Ode (Member)]: Agreed. That's weird. Yes. And while I was thinking

[Rep. Charles Kimbell (Ranking Member)]: regarding You realize Jake just proposed that we remove the capital A's exclusion.

[Jake Feldman (Vermont Department of Taxes)]: Think the capital gains extension.

[Rep. Emilie Kornheiser (Chair)]: I'm kidding, I'm kidding. I'm sorry, Carol. What I'm thinking

[Rep. Carol Ode (Member)]: about is what you were saying, a number, if you tax income or the others income, is if you want stability in taxes, I wonder if it's better to choose stability in income taxes or I I don't know if you can have stability in the other tax we're talking about, investment income. I wonder if you're really better off having the stability come from having stability in the income tax and not having all this going on?

[Jake Feldman (Vermont Department of Taxes)]: So, if you think about Vermont's income tax, for people like me, it's very stable, I work every day, I don't have exotic income. The instability is at the top with capital gains, and this investment proceeds hooks onto that. It has the same instability. Actually, the ITEP report has a really good discussion of the instability and how to deal with that. And so you could take a look at that and then ask whoever is coming from ITEP tomorrow. But you're right that this investment proceeds tax have some of that same instability as the capital gains part of regular income taxes.

[Rep. Carol Ode (Member)]: You had to choose, would you rather have stability in the income tax or deal with this other investment proceeds tax. I'm feeling that bad of hearing, but tell me about the job, you're better off with a stable income tax, not pushing the income. Couple of hours. Investment proceeds.

[Jake Feldman (Vermont Department of Taxes)]: I think if you were to enact the investment proceeds tax, you'd have to be really cautious with how you use it. Because if you're looking for something that needs $40,000,000 or whatever, it may not get you that. It may be very bouncy. So it's like, yeah, I don't that's a consideration for you. Thank

[Rep. Emilie Kornheiser (Chair)]: you. That was what I was asking.

[Rep. Edward "Teddy" Waszazak (Member)]: So first off, I find the sad faints and the phrase exotic income very charming. That was good. It's one page. Now, with all due respect, I find the statement that low and middle income filers generally are benefiting from the OBVA generally to be pretty disingenuous. When you look at the total in dollars, when you look at the total amount of tax cuts that were part of OBVA, 71 percent of those dollars are going to the top 20% of earners nationally. So while there may be more provisions in terms of number of different kinds of tax cuts that are benefiting folks like myself who work for tips, more than 70% of the total dollars in tax cuts are going to the wealthiest 20%. So to say that low and middle income filers are generally the ones who are benefiting from the OBBA, I find it to be a bit of a stretch.

[Jake Feldman (Vermont Department of Taxes)]: Well, I was careful with my wording. I said tax changes. So to me, the tax changes are the things that are new, is the one big, beautiful act. I don't disagree, but it's gonna be the fix on who's benefiting from extending the lower rates. I think the statistics are all right. It's just that what's actually changing in the OBBA versus 2024. And it's mostly dependent on my slide. And also, Kirby mentioned, the only other state that has a tax like this is Minnesota. The rate is 1%, and it only applies to investment income over $1,000,000 and they are getting half of the revenue that they expected from it.

[Rep. Edward "Teddy" Waszazak (Member)]: Do they know why?

[Jake Feldman (Vermont Department of Taxes)]: Yeah. When they sent me a long email, I read it quickly before this committee started. It sounded to me partly like a math mistake, but also they think that just in the first year of a new fax, there's not good compliance, So they think that people just didn't really know about it. Anyway, Minnesota is the only one that does it, and they only do it if you have a million dollars, so that's kind of path of income.

[Rep. Emilie Kornheiser (Chair)]: In terms of

[Rep. Charles Kimbell (Ranking Member)]: So there's exotic income sources, and then there's exotic tax base. Would it be for tax doing this type of tax that's really closely aligned with the federal tax compared to some different creation on our part? Like in terms of a compliance?

[Jake Feldman (Vermont Department of Taxes)]: Yeah, so the closer it is to the federal tax, the easier it is to administer. If a bill was passed that said your Vermont investment process tax is just half of whatever you bid better than that's incredibly simple. The problem is there's going to be differences on what you want to include and exclude from the tax base, and those definitions are going get quite complicated. Minnesota said, hey, sale of a farm, we don't wanna tax it. So they had to write that in. And I imagine that this body may also not wanna include the sale of a farm. Then it starts getting complicated, and where it gets really complicated is if the Feds get rid of their net investment income tax. Then Vermont would have to do something just breathtakingly complicated to bring it back,

[Rep. Emilie Kornheiser (Chair)]: I think.

[Jake Feldman (Vermont Department of Taxes)]: Well, you may want to ask tribute about that one, but that's my opinion.

[Rep. James Masland (Member)]: Yeah, we learned a few years ago that income, personal income, going high and low for various years. Example, if there's a family business that's gold one year, there'll be very high income for that family that year, but then that's a one time event in many cases. That's why presented Ansel referred to the income swings as months.

[Jake Feldman (Vermont Department of Taxes)]: And that's most of high income in birth. It's of that nature.

[Rep. Mark Higley (Member)]: I know you say here that some high profile advisors may physically move away. I don't know all the details of New York, but it sounds like the governor there is saying that she made a mistake and she'd like to come back to the tune of, I mean she's saying in here, I don't know, how she can figure this out, $13,000,000,000 in Yachts revenue from high net worth earners. So what's the difference there, I guess? Just bigger states? New York's got a lot of high rollers.

[Jake Feldman (Vermont Department of Taxes)]: I don't know who moved out of New York. I know in New Jersey, there were some high profile people who moved out of California. Right now, there are a lot of people moving out of Not a lot, a handful of high profile people moving out of California because they're thinking about doing a wealth tax. So yeah, New York has a lot of higher wealth people. I don't know how many Vermont clients, really. I don't know how many high income filers you have who don't.

[Rep. Emilie Kornheiser (Chair)]: Yeah. What else do you have here for us?

[Jake Feldman (Vermont Department of Taxes)]: I think that's all.

[Rep. Emilie Kornheiser (Chair)]: Thanks for coming in, Jacob. Oh, yep. Obviously, data is highly infringed with, but do

[Rep. Carol Ode (Member)]: you ever have every key map of where those high income programs are located?

[Rep. Mark Higley (Member)]: Long Beach.

[Rep. Edward "Teddy" Waszazak (Member)]: We actually do know

[Jake Feldman (Vermont Department of Taxes)]: a lot

[Rep. Emilie Kornheiser (Chair)]: because we have a bunch of business owners, we get a lot of surgeons. The reality, I'm guessing it is, but it's not a report. It's not a report. Let's let Jake answer the question, the team, rather than teasing each other about our districts.

[Jake Feldman (Vermont Department of Taxes)]: I'm imagining a map, because if it had individual points, that would be a confidentiality So you need shades or blobs or something, so that you couldn't tell

[Rep. Emilie Kornheiser (Chair)]: big circle that shows a big Yeah, circle here and there's some

[Jake Feldman (Vermont Department of Taxes)]: we never made that map. But if you go to our annual income tax statistics, there is data by town, and you might be able to get a sense of it from that. Yeah.

[Rep. James Masland (Member)]: At some point, I need to walk an envelope over in the tax department right now.

[Rep. Emilie Kornheiser (Chair)]: Oh, you really wait until the What would that be, James? Moments on tax day, mister Masland.

[Rep. Edward "Teddy" Waszazak (Member)]: I'm open to her soon.

[Rep. Emilie Kornheiser (Chair)]: You want to just give it to Jake to deliver? I'm just kidding. Terrible idea. Okay. Jake, thank you very much for

[Rep. Charles Kimbell (Ranking Member)]: joining us. Really appreciate your work

[Rep. Emilie Kornheiser (Chair)]: and help always. Folks, we are done for the thank you. Hi. Can I just have your attention just for one more second, Jim? Just one sec. Just one second. Wanna make sure you have time to go to tax department. We're done for the day. I'll see everyone tomorrow at nine. Thanks so

[Rep. Edward "Teddy" Waszazak (Member)]: much.

[Rep. Emilie Kornheiser (Chair)]: Thank you. Bye.