Vermont Legislature SmartTranscripts:

[Rep. Emilie Kornheiser (Chair)]: Here we are, Ways and Means, Bill Tuesday, the twenty eighth. It is 02:05PM. We are picking back up our committee bill. We have Pat Chittenden to join us. Thank you, sir. We went through the words, but everyone wanted you, Pat, though we like Kirby.

[Patrick Chittenden (Joint Fiscal Office)]: It always makes me so popular. Patrick Chittenden, joint fiscal office. Scott, I need to hit you with this. Thank you. So yeah, you went through the two proposals, one including the healthcare provision and one not, right? So I am going to share with you a bunch of tables that show some of the income distribution and how their tax bill changes, what that would look like under both scenarios.

[Unidentified Committee Member]: And

[Patrick Chittenden (Joint Fiscal Office)]: just like when I was in On This Bill last time, there are first several slides or ones that you've seen already, but I wanted to include them just if it is useful to the committee to have them for reference as we're going through this. As I mentioned, has the whole shebang, the whole income distribution and effective tax rates has information on income for the top 1% and their distribution and what they're contributing currently, how that's looked over time, a little bit of information about the age breakdown and the demographics of taxpayers in Vermont. And then just for reference, that map showing you the top marginal rate in each state.

[Rep. Bridget Burkhardt (Clerk)]: Yeah.

[Rep. Mark Higley (Member)]: Well, Patrick, already I'm seeing in that first line up there on the top bracket of being 7.4, but I haven't put to the 6.8, right? I haven't seen 7.4.

[Patrick Chittenden (Joint Fiscal Office)]: Sorry, could you let me

[Rep. Mark Higley (Member)]: know So this slide is on page two. Two. This one? Yep. 7.4 over here for the learning loss. Oh,

[Patrick Chittenden (Joint Fiscal Office)]: super Yes, no, that's a good question. So that refers to the effective tax rate. So it's not the marginal brackets that you're familiar with It's in all of just, if you just take their income and their tax, basically what percentage of their overall income is being taxed, personal income. So it's kind of like their average tax rate in a way. It's not referring to any marginal rates. Remember, their income will go through all of the brackets. Thanks. Okay, so the first proposal. This is the proposal that Kirby walked you through that includes those three healthcare provisions, and it raises the top marginal rate and includes investment proceeds tax. So the cost for the first two healthcare provisions Nolan communicated to me was estimated to cost about 75,000,000. So you'll see that the brackets have been constructed in a way to raise that

[Nolan Langweil (Joint Fiscal Office)]: amount. And

[Patrick Chittenden (Joint Fiscal Office)]: then the second piece, which is the credit for the employer covered portion of insurance premiums using against the information that no one was able to provide, constructed a structure using that information that would cost about 42,000,000, which again, calibrate that rate on the investment proceeds tax to cover that dollar amount. So again, that's 42,000,000 on those two bullets. And just for reference, just wanna remind everyone, this is the existing marginal bracket structure in Vermont. You can see that low rate at 3.35% and the current top rate at 8.75%. And this is what Kirby's language showed we would be moving to. So maintaining that 3.35 existing bottom rate, the first three rates actually are being maintained here, but you're seeing that where the top bracket starts is being shifted out. We're not adding a new bracket, we're just shifting the starting point for that top one and then increasing that tax rate from 8.75% to 12.4%. So one thing that I want to point out in all this is that there is going to be a large portion of income between the third bracket and the top bracket, where that income was previously being taxed at 8.71, but now because of the bump out of where the top bracket starts, a lot of that income would then be getting taxed 1.15% lower at that 7.6%. So there are certainly people going up to that new top bracket. And even as you get into that new top bracket, who will also see some tax decreases, which you will see on the coming slides. Again, these were constructed to raise approximately $75,000,000 revenue.

[Rep. Emilie Kornheiser (Chair)]: In order to cover the first two sections of the healthcare book.

[Patrick Chittenden (Joint Fiscal Office)]: Yes. So this construct is meant specifically just for those two. The third one is treated with the investment proceeds tax.

[Rep. Emilie Kornheiser (Chair)]: And so if folks want to keep the whole healthcare proposal together, but not have the investment proceeds taxed, then this could change, or some other piece of the actual, of the spending could change? Just logic ing out the situation. Sure.

[Patrick Chittenden (Joint Fiscal Office)]: The next several slides are showing sort of that income distribution. This first one is including all filers, all resident filers, I should say. I have the brackets equal to the married filing jointly, but you'll see in the next ones that obviously different things happen at different income levels. So because those two bottom brackets were not touching in this proposal here, you're not going to see any tax change in those income ranges. But that dynamic I was talking about where with the bump out of top bracket and some of that income being taxed at 7.6 as opposed to 8.75, that's where you'll see people in this income range seeing some tax decreases. And then of course, the majority of which is being raised by this should say, did I copy and paste in the wrong table?

[Rep. Bridget Burkhardt (Clerk)]: I was like, where is that 12.7 coming from? Let me

[Patrick Chittenden (Joint Fiscal Office)]: see if I have the sections next. That's not what you want. Okay. So that's a shame. Will have that corrected and updated so that you're looking at the right thing. So I guess what I can try and do is talk through it a little bit.

[Rep. Emilie Kornheiser (Chair)]: Do you wanna edit are you in PowerPoint right now?

[Nolan Langweil (Joint Fiscal Office)]: I am in PowerPoint, Ryan.

[Patrick Chittenden (Joint Fiscal Office)]: I am in PowerPoint.

[Rep. Emilie Kornheiser (Chair)]: Do you wanna is it just

[Patrick Chittenden (Joint Fiscal Office)]: It looks like all the tables in this section are from a previous proposal you looked at. Okay. But the second proposal of

[Rep. Emilie Kornheiser (Chair)]: the table is correct. Excellent. Are you able to edit it while we're sitting here, or is that crazy?

[Patrick Chittenden (Joint Fiscal Office)]: Me see if I can do one thing. I'm gonna stop sharing for a brief moment, and I'm gonna pull up Excel.

[Rep. Emilie Kornheiser (Chair)]: I wanna bring up a concern that I have that Pat and Nolan brought up to me the other day, which is the cost of the health care stuff and the revenue from the income are sort of like chiastic or countercyclical with each other. So in an economic downturn, the health care costs will go up. And in an economic downturn, depending on the type of economic downturn, the revenue might go down. And that won't work out all that well. There is sort of an interesting piece with how the last few recessions and recoveries have had that sort of why the alligator mouth, right? P shaped recovery or whatever you want to call it, where sort of the top 1% actually has been sort of doing very well no matter what. But I don't know if that's the top 1% nationally or the top 1% in Vermont, which are two very different top one percents income wise and wealth wise. So that's an interesting thing for us to reckon with. I wonder if, Nolan, you want to add anything on that while I

[Nolan Langweil (Joint Fiscal Office)]: The only other thing I might add is that in economic downturn in the last several, the federal government stepped in to provide assistance to state governments in health care Medicaid seats, unlikely.

[Rep. Emilie Kornheiser (Chair)]: Unlikely in the near future. Near future. Okay.

[Patrick Chittenden (Joint Fiscal Office)]: We've gone to the source. Hello, source. Good news is the only thing that was mislabeled was that rate. That's important. But the average tax change in the filer counts, that stuff was all right. So the table we were trying to look at that was mislabeled.

[Nolan Langweil (Joint Fiscal Office)]: That works

[Rep. Mark Higley (Member)]: just as well. Is

[Patrick Chittenden (Joint Fiscal Office)]: this. So this is what we were just looking at. This refers to all resident filers, this particular table. And again, you'll see that dynamic where the individuals in that third bracket, some of them will be seeing a tax decrease. But again, the majority of the revenue is being raised on that top new bracket, that top 1% bump out of the top bracket. And you can see here again for all these filers, the revenue estimate for that is about $75,000,000 equaling the estimated cost for those first two healthcare provisions. And so what these other tables are, are really just looking at the same thing, except breaking it up by filing status, because we're going to still have different brackets based on what your filing status is, but same rates, of course, throughout. So for married filing jointly, those are the same brackets that I was using for the all filers. You can see that these individuals would be contributing about $60,000,000 of that revenue change. So the majority of the revenue would be coming from married filing jointly filers, Married filing separately, a much smaller portion of all of this. And again, you can just see how the different rates by two different income amounts based on the filing status, single. The most, if I count the filers, this is the largest cohort of taxpayers in Vermont or tax returns, I should say. And so, but they're, it's supposed to very finally jointly contributing about 60,000,000 of the increase, about 12,000,000 would be on increased taxes for single filers. And then lastly, head of household, 2,100,000 from those. And you can see consistently with all of those filing status tables that those folks in the third bracket would be seeing some decreases with this construct. Okay. So we are gonna go back into Excel or sorry, PowerPoint. Get this terrible slide off the screen. To then talk about the change to the investment proceeds tax. So again, this is just showing a distribution of Vermonters who pay the federal version. The majority of the revenue is coming from those folks with a million dollars or more in AGI on the federal side of things. And yeah, overall, it's applying to about 12,000 Vermonters paid this federal tax. Now, the language Kirby showed you, where this proposal is structured very much the same as the federal one with the key distinction of the rate in the language now is set at 3.45%, which would generate approximately $42,000,000 which when looking at the credit for the employer covered portion of premiums, if they received credit for about 12% of those costs, that would come out to about $42,000,000 So again, this is a situation where constructed this piece of it with the tax rate to match with the estimated cost of that credit. Now, of course, if you wanted to make the credit more generous, what do you have to do to keep it in balance? You'd need to be increasing the tax rate here. Same is true if you wanted to reduce the rate on the investment proceeds tax, you'd have to then be decreasing the credit to keep it balanced. So this is sort of summarizing the different costs and revenue razors. First there, have the PIC bracket and rate changes. That's at 75,200,000. There's the VIP tax, about 42,000,000, which is sort constructed to cover the 75,000,000, 37,800,000,000. And then one piece I haven't mentioned is that one potential, and if you all want more details on this, I might defer to Nolan, but with that credit for the employer covered insurance premiums, there is an expectation that claims assessment would decrease and Nolan has that estimated to be about 3,500,000. So sort of included in the estimate for the cost of that credit for employers.

[Nolan Langweil (Joint Fiscal Office)]: Did you just ask? The employer assessment. Yeah, the employer assessment.

[Patrick Chittenden (Joint Fiscal Office)]: So when you put all these pieces together for fiscal year twenty eight, the outlook's looking at about pretty much revenue neutral, but with some rounding. So that's where the 800,000 net positive comes in there.

[Unidentified Committee Member]: So just so I understand this, the qualified health benefit, that 75 is money that we are paying out from what we collected in increase in income tax. We're paying it back out to help bring down the health care costs of certain Vermonters. Is that correct? Yes. Okay. And then how does this employment employer premium credit thing? That's money going into employers. How?

[Patrick Chittenden (Joint Fiscal Office)]: So I'm sure Kirby will correct me if I say anything wrong, but there are some requirements on the size of business that this applies to. I think it's 100 employees or less. He's nodding. And so basically, if the employer is offering health insurance to their employees and covering I think on average, employers are covering 73% of insurance premiums for employees. That dollar figure amount that they're covering would then be eligible to receive a credit for from the state offset some of their costs.

[Unidentified Committee Member]: You mean 73% of Vermonters are receiving new

[Patrick Chittenden (Joint Fiscal Office)]: No, if an employer offers insurance, typically there'll be an employee contribution, and then the employer will cover the other portion of their premium. The average rate in Vermont is employers are covering about 73% of the premium. So it's a 12% credit for the employer portion that they're covering. 12% of the employer portion Yes. Is a

[Unidentified Committee Member]: And that totals $37,000,000 $36,000,000

[Rep. Mark Higley (Member)]: Okay.

[Unidentified Committee Member]: All right, and how do they claim that? How do we get it?

[Patrick Chittenden (Joint Fiscal Office)]: I might defer to Kirby on the specifics of the administration. Sure. So

[Rep. Charles Kimbell (Ranking Member)]: So to follow-up on that, just kind of come out of the quarterly withholdings that the corporation is making or their extended

[Patrick Chittenden (Joint Fiscal Office)]: Yeah that's a good question whether it would come out quarterly or it would just be when the returns filed would in the year. I might have to consult the department about how that changed out.

[Unidentified Committee Member]: So the government giving the tax department?

[Nolan Langweil (Joint Fiscal Office)]: Yes.

[Unidentified Committee Member]: Okay, so they're all aware of this and they think they could do it? We haven't heard testimony from them yet. Representative Burkhardt.

[Rep. Bridget Burkhardt (Clerk)]: So does this $37,800,000 cost include any assumption about employers who might expand or might get into providing health insurance who don't right now? Or is that just on the base that are providing insurance?

[Patrick Chittenden (Joint Fiscal Office)]: Nolan and I had that exact conversation just the other day. So we have included some buffer, but it is somewhat unclear on what uptake might look like. And I do believe that the $3,500,000 for the employer assessment piece there was related to uptake, opting to start offering insurance and covering some of the premiums because of the credit.

[Unidentified Committee Member]: Representative, can you tell me, you just barely mentioned the claims assessment decrease, 3.5. Can you tell me how that's supposed to work and how do you arrive at three five?

[Patrick Chittenden (Joint Fiscal Office)]: I would rely on Nolan to answer that.

[Nolan Langweil (Joint Fiscal Office)]: For the record, Nolan, I will join this process. So the way the employer assessment works is employers pay, I think it's roughly $300 per quarter for uncovered FTE. So the assumption is, on the 1st Floor, excluded is all this stuff, right? And so the assumption is that as employers decide, oh, now I've a tax credit that's incentive for you to provide health insurance, they no longer have to pay that claim that employers So we're making some assumption that they're not paying for uncovered FTEs because they're no longer covered, like a certain number. So we made some assumptions.

[Unidentified Committee Member]: So it's a negative, wouldn't that be a positive to us, to see?

[Nolan Langweil (Joint Fiscal Office)]: What we're saying is that because there's potentially less covered FTE, because they're covered, which is a good thing, we're going lose some revenue.

[Rep. Mark Higley (Member)]: We So have offset, institutional offset. Oh, right, because the

[Unidentified Committee Member]: employers are paying into us.

[Nolan Langweil (Joint Fiscal Office)]: Employers decide to cover their people, therefore they don't have to pay, they're not getting penalized for not covered with balloons. Okay.

[Unidentified Committee Member]: Appreciate that. The Department

[Patrick Chittenden (Joint Fiscal Office)]: of Texas has a guide on what's called the healthcare fund contribution assessment, and I can send that out to the committee.

[Rep. Emilie Kornheiser (Chair)]: Thanks, Kirby.

[Unidentified Committee Member]: Representative Holcombe.

[Rep. Rebecca Holcombe (Member)]: Yeah, and this is sort of actually where my question's in the same space, that's why I asked the question earlier about why people would choose the exchange versus the small business, and I wondered if there are other beyond the state incentives that might shape, because employers will be making the dynamic decision that's best for their bottom line, what are other factors that might influence that decision and affect these numbers? Yeah, Emilie would do well.

[Nolan Langweil (Joint Fiscal Office)]: So if an employer does not cover their employee and their employee is on exchange being a subsidy, they are paying the employers for that too. So there was a lot of conversation about people, during back in the single payer day, there was a lot of conversations about employers dropping insurance for people to go into these public programs. I think, Kirby said it earlier, a lot of employers use it as a recruitment tool. A lot of employers feel their responsibility to provide that benefit, so I don't think it becomes personal choice by an employer.

[Rep. Rebecca Holcombe (Member)]: Other questions or thoughts? I have a question sorry. I think it's also for Joanne, though, which is, could you say another word about why health care costs are sort of countercyclical in a recession. What assumption is being made there about why that is happening? Guess it's just my question. I have some ideas or some assumptions about why that could be, but why is that the case?

[Nolan Langweil (Joint Fiscal Office)]: Why healthcare costs go up?

[Rep. Rebecca Holcombe (Member)]: Yes, in a recession and income potentially goes down, because that's what the chair mentioned you had discussed previously, that those potentially could be countercyclical, although we could be shooting ourselves in the foot of it if we're trying to fund something that's going to increase with a tax revenue that's going to potentially decrease. My assumption, if I'm telling a story, would be that premiums would have to go up because maybe the market was doing worse, and so the insurance company is having to raise premiums, but I don't know if that's the story or what the story could be because

[Nolan Langweil (Joint Fiscal Office)]: It's a long story. Okay. It's probably better conversational.

[Rep. Rebecca Holcombe (Member)]: Okay.

[Unidentified Committee Member]: But it, okay.

[Rep. Rebecca Holcombe (Member)]: I'm worried about this in part because there's such a rapid change in the market based on the federal changes, and most of our data is, I we just don't have, I don't know if we have current data on what people are doing in response, I guess that's what I wonder. I also wonder, I mean, what is the cost of not doing this, because one of the healthcare advocate slides was talking about disenrollments due to failure to pay, and I wonder what's the cost of not back billing in terms of uncollectible debt and other stuff the the system, to be if nobody had known. Maybe we should ask Representative Page or something.

[Rep. Mark Higley (Member)]: Well, other thing, my understanding is this wouldn't take effect until 01/01/2028, isn't it? It's got two years. Don't know, such as things happening or not happening. As a matter of fact, at some point I'd just like to ask the process question whenever we have it done. I don't want to, she cancels her

[Unidentified Committee Member]: vehicle's time. Represent the page.

[Rep. Mark Higley (Member)]: I was gonna say, so what are we doing when we die? It's two years while we've had this situation.

[Rep. Emilie Kornheiser (Chair)]: I don't think that's a question for Pat, though.

[Rep. Mark Higley (Member)]: It's a

[Rep. Emilie Kornheiser (Chair)]: very good one. Yeah. Yeah. Yeah. There's no so the one of the things that I think regularly comes up around taxation, right, is that most of the more progressive and more effective and more base oriented or any Most of the better tax types and more responsible taxation, you don't have an implementation date right away because people are sort of planning their business cycle and their annual cycle, right, based on the current tax structure. So good manners in the tax system is to have it be effective the next calendar year. And then it takes essentially a full year for that revenue to come in and be applied. And so I think there's always a chicken and egg of why should we apply this now if we're not going to have the benefits for two years, but then in two years, we don't have the benefits of it because we didn't apply it two years ago. I don't know what to do for the next two years, and I don't really know how our hospitals are going to make it for the next two years. Represent Page? Year and a half, I guess. Yes, represent Holcombe.

[Rep. Bridget Burkhardt (Clerk)]: Sorry, because we have so many initiatives like reference based pricing that are supposed to be bending the curve, but they won't really benefit us for a while anyway. I mean, of it is trying to find a stop gap until we have some solutions the same.

[Rep. Mark Higley (Member)]: Well, it's not just our policy.

[Rep. Emilie Kornheiser (Chair)]: No. I hear you. And people trying to pay their bills. Sort of maybe, yeah, quite importantly too. I'm gonna go back to Pat and see if anyone has anything on proposal one. Does that all line up? People keep on telling me privately they want to take the VIP tax out. No one's saying it at the table, so I'm just going be the voice for all the people on the committee that have said that to me. If we do do that, how would folks want to adjust the other things? Yes, for example, what's that?

[Patrick Chittenden (Joint Fiscal Office)]: I will offer something that I've said as

[Unidentified Committee Member]: a compromise, not online before, but

[Patrick Chittenden (Joint Fiscal Office)]: I would advocate for sort of, I just don't like the phrase splitting the baby in, I really

[Nolan Langweil (Joint Fiscal Office)]: don't want to use it, splitting

[Patrick Chittenden (Joint Fiscal Office)]: the loaf of saying, keep the narrowed in VIP that's on the table here to pay for the small business tax credit and use the 75,000,000 in changes from the first proposal to adjust the brackets and do a little bit of both.

[Rep. Bridget Burkhardt (Clerk)]: Representative Malphon.

[Rep. Emilie Kornheiser (Chair)]: Yeah. Sorry, Pat, you were now sitting here for our committee discussions.

[Patrick Chittenden (Joint Fiscal Office)]: No, I wanna see. My picture

[Nolan Langweil (Joint Fiscal Office)]: is testimony about the benefits of providing better healthcare rates. Well, that was very helpful. I'm still wondering about the narratives, but basically don't talk about that right now, about how we win the day on

[Patrick Chittenden (Joint Fiscal Office)]: we see if I can get

[Nolan Langweil (Joint Fiscal Office)]: my sentence to come out.

[Rep. Emilie Kornheiser (Chair)]: I think I'm more wondering about people's policy considerations on the VIP tax.

[Patrick Chittenden (Joint Fiscal Office)]: I'll save it for later.

[Rep. Emilie Kornheiser (Chair)]: Okay.

[Nolan Langweil (Joint Fiscal Office)]: Thank you.

[Rep. Emilie Kornheiser (Chair)]: Does anyone have any policy considerations on the VIP tax they want to bring to the table right now? Sure. Thanks so much, Representative Kimbell.

[Rep. Charles Kimbell (Ranking Member)]: Yeah, I'm not a particular proponent of the net investment income tax that's applied to Vermont.

[Rep. Bridget Burkhardt (Clerk)]: Because you're refusing to use

[Patrick Chittenden (Joint Fiscal Office)]: the I am. So much better.

[Rep. Charles Kimbell (Ranking Member)]: Because I do think it has drastic implications for business growth, small business growth, events and individuals' lives that are then taxed at their, sometimes, the most vulnerable point, trying to exit a business or I guess something else. So I'm not a fan of that anyway, and we've had some written testimony submitted to us that kind of corroborate that. So I would be happy to take it out.

[Rep. Mark Higley (Member)]: I would say I would be happy to take it out as well and then I'll go on further to talk about my procedure. I mean you talked about an implementation date further out as a courtesy or whatever for folks, business or whatever. I think it's the same as what we're doing right now. I have a real concern that two weeks ago this kind of all of a sudden came into play. So all of a sudden there's groups out there that must have a definite interest in this that I'm anyway getting blasted by folks. Oh Mark, you've got to pass the well time, you've to pass on and on and on. I had responded to, in particular the ones that I'm liking, the sick ones for sure, half of those came back as undelivered. So I guess just to go further, we've only got another month, hopefully. Mean, it's been talked about maybe longer than

[Unidentified Committee Member]: That's not good. So,

[Rep. Mark Higley (Member)]: we've already changed it. In two weeks, we've changed it from fifteen point three to twelve point seven. We've got all these changes going on. I mean, if healthcare is going to be involved, the healthcare committee, I would think we definitely have to take some time with this. Senator, you know, so I don't see realistically the time that we're spending on this. I mean, maybe it's good exercise, sure. Maybe it will be picked up next year, maybe it won't. Maybe if people have a clue as to what we're coming to do. I think we have a lot of opinions on what we've heard so far. But again, I don't think that our time is well spent with what we're doing here. I don't appreciate that the constituency out there really doesn't get it right now either. For us to get it through the full process in a month's time is unrealistic for a truthful, realistic expectation. I appreciate

[Rep. Emilie Kornheiser (Chair)]: that. I'll add sort of just a few process considerations. One, the Senate took a great deal of testimony. The reason the proposal was sort of shaped the way it did when it became a committee bill was that was essentially what the Senate had been taking testimony on for quite a while. They did not pass it, but had enough folks requesting that we pick it up and take testimony on it that we agreed to do that. We would need to finish our work and vote early next week in order to meet any of the timelines that are set up. And so that's what I was imagining. We have this testimony today, and then we're going to have to turn to a few other things for the rest of the week and probably squeeze in a little bit of time on this if we need to. But I was hoping to get at least our policy thoughts on this today a little tighter. Representative Masland.

[Rep. James Masland (Member)]: Briefly, I think our time is being well spent, but I'm really waiting for the light at the end of the tunnel. This is gonna be useful in line regardless what we do in the next several days. Anyway, zip in.

[Rep. Emilie Kornheiser (Chair)]: Okay. Thanks. These are sort of like the pressing issues of our time, I think it's always helpful to talk about whether there is a path to passage or not. And I think it's very confusing for the public that we're working two different policies simultaneously, and I appreciate that. And I'm trying to reply to any emails from the public as I see them. And I think some of that information is being shared more broadly.

[Rep. Bridget Burkhardt (Clerk)]: Yeah, Representative Quirkhardt. I want to Representative Page has been shot, but I'd like to lift up what Representative Page said, because I am concerned that with health care, we won't actually see the problem until it's too late. And especially when you think about what some low leading indicators are, it's what we well in the adults about. And so I appreciate you're trying to talk about these two problems in Tim that we can say, I think we need to do something to stop that on healthcare while we figure out the new future state of healthcare as well. So I realized it's hard and it's gonna take a while, but if we don't do this, then we know there will be a response from the future too. Yes. Yeah, Brooks are very So can I ask a question

[Unidentified Committee Member]: of Park Ginny and Peggy?

[Rep. Emilie Kornheiser (Chair)]: Sure. And then I think after that, we're going to make sure we review proposals too with that.

[Unidentified Committee Member]: Yeah, I think that would be helpful for us to represent Ms. Higley, but are you saying then that you prefer not to do anything with healthcare costs, but instead if we were to come up with some kind of an increase in revenue somehow to just use it to lower or reduce income tax. Is that what you're preferring?

[Rep. Mark Higley (Member)]: I'm preferring that if we really are serious about doing something with healthcare, we move to the beginning of the year and it should have been addressed to the budget.

[Unidentified Committee Member]: I see. Do you want to continue to talk about reducing or increasing

[Rep. Bridget Burkhardt (Clerk)]: income tax? Well, I'll

[Rep. Mark Higley (Member)]: definitely talk about it, sure.

[Unidentified Committee Member]: But you don't have a goal in mind?

[Rep. Mark Higley (Member)]: I don't have a goal. Mean, goal is, and I have a whole entourage of reasons why we shouldn't do it, and I'm not going to go into that now.

[Unidentified Committee Member]: So everybody now knows we need to have a squirrel meeting.

[Rep. Emilie Kornheiser (Chair)]: Going to go to, Pat, I'm gonna ask you to take a pause from your time at the table because we have a witness in the Zoom who's gonna join us. And so we're gonna hear from two witnesses and then go back to Pat to make sure we see the tables in option two. Pat, you said you don't have to go back to the probes?

[Unidentified Committee Member]: You do.

[Rep. Emilie Kornheiser (Chair)]: For 15. For 15. Okay, this is all going to work out beautifully, I'm sure. Okay. Or maybe it won't. We'll see. Matt Clear, hello.

[Matt Clear, CPA (Vermont Society of CPAs)]: Good afternoon.

[Rep. Emilie Kornheiser (Chair)]: Good afternoon. I'm sorry to leave you waiting in the

[Matt Clear, CPA (Vermont Society of CPAs)]: It was interesting to listen in on the conversation.

[Rep. Emilie Kornheiser (Chair)]: Good. You really got the juice of it there. So glad to have you. Thanks for joining us.

[Matt Clear, CPA (Vermont Society of CPAs)]: Absolutely. I'm happy to be here. For those I haven't had the opportunity to meet before, my name is Matt Clear. I'm a public accountant in are with the firm Davis and Hodgdon are out of Williston. About nineteen years in the profession and here in my capacity as the as board member of the Vermont Society of CPAs and former chair of the State Society as well. Although it sounds like a lot of what I'd sort of prepared as observations may be obsolete at this point, I'm still gonna-

[Rep. Emilie Kornheiser (Chair)]: Please do.

[Matt Clear, CPA (Vermont Society of CPAs)]: Yeah. I'm through a couple of observations I had on a draft that may not be the current one is my understanding.

[Rep. Emilie Kornheiser (Chair)]: But even, you know, validation that we are you know, that if you critique something from the past and we have changed that, that's nice to hear too. So don't feel that the time is wasted. We're glad you're here.

[Matt Clear, CPA (Vermont Society of CPAs)]: Absolutely. And and to be clear, I'm not trying to specifically critique anything. There's just some observations that I had about what I read at the time. And feel free to jump in and correct me if it's already obsolete. There's a minor change in terms of the draft that I'm looking at with the married filing joint tables. On line 10, it had what I believe is a mistake for the taxable income level. And so I figured I'd just point that out since I was in here. It lists that the top bracket or proposed top bracket in the version I'm looking at, which is 12.7% bracket, would kick in at 312,000, and I believe from the rest of it, the intent is that would have been at 586. So I don't know if that was something worth highlighting here. Most of my observations have to do with subsection six and also on the VIP. I think that's what we're there. VIT, the Vermont Investment Income Taxes were thrown around. Subsection six, I was curious what the intent is of this sort of it's almost like a minimum tax for a number of reasons. One is having the threshold set at an AGI one fifty doesn't really take into account filing statuses like other things do, so it creates a kind of a different sort of engagement point depending on what your status is in terms of what your family's income is. And also because it seems generally in tax policy, I'm of the opinion that cliffs are a bad thing. And when you have this sort of minimum tax that sort of kicks in after a certain point, you do create a cliff where, you know, family could earn one more dollar of income and end up with a situation where they owe quite a bit more in taxes. Generally, that's that's not something you wanna build into the tax code. And and the way this is worded here, at least my understanding of how this would be applied, it does create a cliff between, you know, hundred and forty nine nine ninety nine and AGI and a 150. It also in certain because I did run a few scenarios out of my own curiosity, and it does seem like it creates this weird area bubble between a 150 and AGI and depending on filing status, points where it's it doesn't seem like it would be it'd be more middle income people that would be hit and affected by this because based on the higher tax rates in the higher brackets now, it wouldn't really apply to anyone other than those who just sort of crossed into the threshold for a period of time before their income got high enough that they'd be having enough tax that 6.6 or higher bracket income based on the calculations I did myself. And I don't know that that would be the intent of something like this.

[Rep. Emilie Kornheiser (Chair)]: Can you explain more about what you mean by that?

[Matt Clear, CPA (Vermont Society of CPAs)]: Yeah. So I ran a few scenarios. One, because I wanted to specifically look at situations around where the capital gains exclusion would happen on, like, you know, sale of a family farm, somebody's retirement, and long term capital gains, that 40% exclusion we have. And so I ran the numbers for just really simply, you know, family of five married and filing joint, what would their total taxes be at a $149.09 99 of AGI compared to a 150? And it's about $660 increase based on just one more dollar of income because this this 3% additional amount would kick in right at that $1, and it just it seemed like a big jump there. And then I based on the rough calculations that I did, it seems like it's kinda starts to even out again once you get to about a 168, 169,000 in AGI. So it creates this weird, bubble where, only a very limited subset of Vermont taxpayers would actually be effectively paying that additional alternative tax calculation, if you will. Is that am I doing it?

[Rep. Emilie Kornheiser (Chair)]: Yeah. Yeah. Yeah. That's perfect. Thank you. That's yes. Appreciate that.

[Matt Clear, CPA (Vermont Society of CPAs)]: And then with that, the thought around, you know, in specific I'll give the example, you know, they sell the family farm. That's kind of the retirement account. We've got that great 40% exclusion on the long term capital gains from it, but that's not excluded from the AGI calculation. So there are situations where somebody would have a relatively low long term capital gain that would be eligible for the exclusion, and potentially be paying this other tax. And so that those were the two kinda numbers that I ran there that it just struck me as it didn't it didn't feel like it fit with the rest of what was what I was seeing, which was kind of an expansion of the lower brackets, the lower income or the the lower tax rate, actually, the some of the lower income levels.

[Rep. Emilie Kornheiser (Chair)]: I'm trying to figure out how this parallels federal taxes and how the net is used at the federal level and capital gains exclusions at the federal level. Because when I look at our proposal, it does seem like this weird counterintuitive thing with the capital gains exemption and the VIP tax mixed together. And but I my understanding is that that same weird mix happens at the federal level?

[Matt Clear, CPA (Vermont Society of CPAs)]: At the federal level, and I believe would actually be the case from the least draft that I'm looking at for Vermont, I believe all of the scenarios I can think of where the 40% exclusion would apply are also income that would be excluded from net investment income tax for the purposes of calculating that at the federal level. And I believe the definitions are the same in terms of what investment income is considered. So the way I read this, you I don't know that you'd have that particular issue. But when it comes to chapter was it? One forty nine. I mean, taking a step back, the the federal net investment income tax, I believe, was created with the ACA, and it was really about essentially adding something that was meant to be almost Medicare taxes on a class of income that didn't pay payroll taxes. The idea that your w two wages are taxed a little bit more heavily than your investment income and though and I'm not saying I I'm not expressing necessarily an opinion on that piece, but the idea or the way it was marketed as being fair as it was helping for, like, those living off passive investment streams that were significant would be also contributing into the system, which should help pay for health care for others. So it was meant to kind of emulate or build as emulating a payroll tax, and to add that to Vermont income isn't really the same thing because there isn't, a Vermont specific income tax that or payroll tax that this would be sort of offsetting on those types of income if I'm explaining those. So that was something that stuck out to me there. The other I mean, the other thing which is only really a nominal observation was it doesn't seem like so Vermont taxes, tax exempt interests that is from other states tax exempt debt, And it doesn't seem like that's accounted for in this. So that seems like the way that was worded, it would be excluded from the calculation of this tax, which I'm not sure if that was intentional or not. But those are my Okay. Thanks. Those are my observations about what I was read. It sounds like it might be superseded at this point, though.

[Rep. Emilie Kornheiser (Chair)]: That context about the payroll tax is really interesting. Had an idea that it was to pay for ACA stuff, but that sort of philosophical parallel is interesting. Thanks.

[Patrick Chittenden (Joint Fiscal Office)]: Right.

[Rep. Charles Kimbell (Ranking Member)]: Yeah, Matt, I'm wondering because, first of all, congratulations on making it past April 15.

[Matt Clear, CPA (Vermont Society of CPAs)]: Thank you.

[Rep. Charles Kimbell (Ranking Member)]: And from a client facing perspective, and if you're in a position of advising your clients as to what they should be doing regarding how their income is structured, would the bill as configured change how you might advise them?

[Matt Clear, CPA (Vermont Society of CPAs)]: I don't know that it would change the advice because a lot of our strategies are around minimizing their exposure around net investment income tax when they can. I mean, sometimes you're in a situation where your dividends and interest and other income are just gonna put you there. So it would be it would just bolster those strategies around managing your income and, in particular, managing, things like capital gains and the timing of capital gains and whether or not to, execute capital losses. So I don't I don't I don't know that this would change a lot of those strategies, but it would certainly increase the incentive to to do planning around minimizing those taxes. K.

[Nolan Langweil (Joint Fiscal Office)]: Thank you for that.

[Matt Clear, CPA (Vermont Society of CPAs)]: Absolutely.

[Rep. Bridget Burkhardt (Clerk)]: Any other questions or thoughts from anyone else on the

[Unidentified Committee Member]: committee? Anything else you want to share with us, Matt?

[Matt Clear, CPA (Vermont Society of CPAs)]: Not not based on any of this, but, yeah, I don't know if there were any changes in anything that would make sense for me to speak to, but I appreciate being here and have an opportunity to speak with you all if there's

[Unidentified Committee Member]: I no other

[Rep. Emilie Kornheiser (Chair)]: really appreciate it. And we are sort of definitely updating, changing brackets, changing exemptions, and we'll keep on sending drafts for comment if you're interested in continuing to participate -Absolutely. In -Okay. Thank you so much for your time today. I really appreciate it. -Thanks for having me. -Folks on the committee asked for testimony, like, on April 16 from an accountant, and it was sort of a funny moment here. So glad to have you. Thank you.

[Matt Clear, CPA (Vermont Society of CPAs)]: Would have been a lot grumpier than

[Rep. Emilie Kornheiser (Chair)]: Yeah, absolutely. Take care.

[Unidentified Committee Member]: Back to you.

[Patrick Chittenden (Joint Fiscal Office)]: And still Patrick Tarraton with the Joint Fiscal Office. And yeah, so I am going to pull back up my slides. I looked at them while I had my little break there and I did not make the same mistake with the first proposal. So we're not going have to go to Excel.

[Rep. Bridget Burkhardt (Clerk)]: It was kind of fun

[Unidentified Committee Member]: to go to Excel, but I appreciate.

[Patrick Chittenden (Joint Fiscal Office)]: So the general sort of requests that was given to me was, again, looking at moving that top bracket up with an increase in the rate, while at the same time in this version, including the investment proceeds tax and for all of the changes put together to ultimately come out to be revenue neutral. So I guess I'll just start walking through that. So again, these are the existing brackets. You can see two things that are going to change are that low rate is going to change, the highest rate is going to change, and then also where the highest bracket starts changes when we come to this slide. So basically, the general structure here is with the money that is being raised with the investment proceeds tax and with the higher tax rate on the top bracket, what this does is it's lowering that bottom bracket And it's been lowered to a point where essentially the money that's being raised is offset by the amount that's not being collected through lowering that bottom rate. And so just when thinking about why specifically the bottom rate, just remember these are marginal tax brackets, so everybody's income flows through all the brackets. So, when you lower that lowest rate, you're lowering it for everybody. It's not like you make $600,000 that income is taxed at 12.4%. Rather, they're also seeing those decreases on their income at the low end. So that's the change I should say 10%. So again, this is looking at how all these changes apply to all filers and what the average tax change is by income cohort. Again, these are the brackets that apply to the married filing jointly, just for reference. And you can see that with this construct on the personal income side of things, everyone who is within the bottom three brackets is seeing on average tax bill decreases. And again, that's a function of just taking that lowest rate and lowering it because that applies for everyone. And then that 10% rate that you see here, that's generating here just within that cohort of individuals an estimated 20,000,000. So overall, just on the side of things, all of the increase in tax but lowering for most people would decrease state revenue by about $42,000,000 Oh, wait. So again, I have the income distributions by the different filing. You can see that for each of the file accesses I have here, those bottom three brackets are seeing on average tax decreases. And so $42,000,000 hold, it's in this construct being offset by the 3.45% tax rate on the investment proceeds tax. So really on one hand, you're generally decreasing, but also shifting tax incidents on the personal income tax side, but replacing that overall tax decrease in personal income tax with this investment proceeds tax. So those two provisions put together sort of designed to largely offset each other and be revenue neutral. So that's sort of the second proposal in front of you. That does not include any of the healthcare provisions, does change sort of the distribution in the personal income tax world and adds the investment proceeds tax to offset that. So it's a slight decrease, but we are talking two years out as well. So that's sort of the basic bare bones. It's a simpler sort of construct because it doesn't have the healthcare pieces, but just generally speaking, largely designed to be revenue neutral.

[Rep. Emilie Kornheiser (Chair)]: Do you imagine that it would, both obnoxious questions, so sorry, that it would stay revenue neutral ten years out?

[Unidentified Committee Member]: I do apologize.

[Patrick Chittenden (Joint Fiscal Office)]: Well, in a sense, what is happening here is you're taking the broadest base of income in the general fund and you're lowering the tax rate in its broadest sense, that's at lowest rate, and you're concentrating more of the taxing, of the tax capture, if you wanna call it that, on the relatively smaller cohort of high income earners. So remember, when we talk about the investment proceeds tax, we're talking about about 12,000 Vermonters. And for that top 1%, we can jump back to that table. That's about 4,500 filers, 4,600 filers. So there's going to probably be some overlap with the 12,000 there, right? But you're concentrating a lot more revenue on a narrower base. So anyway, that's kind of a long way of getting at. It does potentially introduce a little bit more Actually, Graham was talking a little bit about this when he was talking about when he was here with you all, but it does increase the difficulty of forecasting a little bit because with a narrower base, it's not quite as predictable. Something that is quite predictable with a huge base is something like sales and use tax. So maybe that's a long way of answering and saying that with some narrowing of the base that we're talking about here, it could introduce a little more variability. Investment proceeds one is very prose cyclical, right? It follows the patterns of the general economy. If we having a tough economic environment, it's likely not to perform as well because it is very much tied to market performance. And then conversely, if the market is doing quite well, there could be more people having this type of income and tripping over those thresholds that triggered liability.

[Rep. Charles Kimbell (Ranking Member)]: And from previous testimony, not necessarily always true, but that income could be moved to a different jurisdiction. It can be planned more easily to take unearned income and move it into a different, whether it's into a trust that's located in a different state, that type of thing. I'm saying you're narrowing the base to have that, and then that's still vulnerable. And when looking

[Patrick Chittenden (Joint Fiscal Office)]: at the investment proceeds tax, the biggest component of that, federally anyway, and then what would be true in this case as well, is that the largest piece of that buy is coming from capital gains. Capital gains is generally the type of investment income you'll have the most control over, realization. So you can time sales to whatnot. I think the testimony you just heard sounds like accountants are already doing that, of advising their clients with respect to the federal version. Yeah, that's a portion of it that the taxpayer or the resident is going

[Rep. Mark Higley (Member)]: to have the most control over,

[Patrick Chittenden (Joint Fiscal Office)]: sort of, from a behavioral standpoint.

[Unidentified Committee Member]: I'm gonna channel Representative Ode in her absence.

[Rep. Emilie Kornheiser (Chair)]: Everyone just wants to prepare for that one. The idea of lowering the rate in the lowest bracket versus building more exemptions to focus our energies on that population, what

[Patrick Chittenden (Joint Fiscal Office)]: are your pros and cons there? Well, credits and exemptions are always going be much more surgical because you can really target specific types of either activity or demographic characteristics of taxpayers. So you can really focus the financial support through the tax code that you're providing, doing something like that with something that's very But just lowering the bottom rate is a great example, something that applies to everyone. You're maybe not giving as generous on a per person who's eligible standpoint, but you're spreading those reductions in taxes the most broadly. So on one hand, it's very targeted and surgical, and on the other, it's having it apply to everyone regardless of their situation.

[Rep. Emilie Kornheiser (Chair)]: Any other questions for Pat?

[Unidentified Committee Member]: Thank you. Thanks, Pat.

[Patrick Chittenden (Joint Fiscal Office)]: I will send Scott corrective slides.

[Rep. Emilie Kornheiser (Chair)]: Thank you, Pat. We have one more witness inside the computer. Chris Cassidy, hello. Thank you for joining us today.

[Patrick Chittenden (Joint Fiscal Office)]: Welcome how are

[Rep. Emilie Kornheiser (Chair)]: to Ways and Means, really glad you could join us to testify.

[Chris Cassidy (Trust Company of Vermont)]: Yeah, how best to proceed, do you want me to read a statement or answer questions, or what would be most helpful to all of you?

[Rep. Emilie Kornheiser (Chair)]: If you wanted to start off reading a statement and then maybe we could ask you questions after that. Does that work for you?

[Chris Cassidy (Trust Company of Vermont)]: Sounds great.

[Rep. Emilie Kornheiser (Chair)]: And if it's a written statement and you're able to submit it to us, that's great too. And maybe you did that already and I just don't know.

[Chris Cassidy (Trust Company of Vermont)]: No, I'm not.

[Rep. Emilie Kornheiser (Chair)]: Okay, great. You can send it to the same email address that invited you.

[Rep. Mark Higley (Member)]: Okay.

[Unidentified Committee Member]: Thank you.

[Chris Cassidy (Trust Company of Vermont)]: Yeah. Well, thank you, Madam Chairwoman, Vice Chairman, distinguished members of the committee. My name is Chris Cassidy. I've been an employee owner at Trust Company of Vermont for the past twenty years. We have offices in Brattleboro, Rutland, Manchester, and Colchester, Vermont, as well as Kane, New Hampshire, where we work with high net worth individuals in asset management, financial planning, trust administration, and estate and tax consultation. I am not a lawmaker nor a CPA, and I'm not opposed or in favor of the proposal presented. I assume that I was asked to testify because Trust Company of Vermont has potential insights into high net worth individuals, some of whom would be impacted by the proposal. I want to make clear that every individual we work with has different opinions on taxation, but I can try and summarize some common client interactions that may be relevant to these discussions. That sounds perfect. Okay, we use a software program called e money, which helps clients with financial planning. Traditional IRAs came about in the early 1980s with the Economic Recovery Act, and a lot of individuals retiring now have substantial portions of their net worth in traditional IRAs or traditional four zero one ks's. So clients will often ask us to run financial modeling scenarios with them remaining a Vermont resident for the remainder of their life versus say moving to a state with no income tax like New Hampshire or Florida. Due to state income taxes in some instances, again everybody's different. The financial projections could show that individuals may not have sufficient means at their desired spending level if they stay in the state and live well beyond their life expectancy. But if they were to move out of state, they may not run out of assets. So obviously this proposal would have impacts on those calculations and that decision for certain retired Vermonters. I know that the state has been trying to get young professionals to move to Vermont, which is great. If you're, say, a surgeon considering moving to Vermont and plan on having an income of $607,108 100,000, you would fall into the 12.7% tax bracket, at least the latest iteration that I saw from the proposal. For that individual, they would be paying, you know, $50.60, 70,000 annually in Vermont state income taxes that they wouldn't be paying if they instead settled down in the state with with no income taxes and $50.60, 70,000 annually growing at seven to 8% in a diversified portfolio over a long period of time can add up to a pretty meaningful sum, particularly when considering family formation or saving for retirement. And so this proposal would impact those calculations that young professionals might be running when deciding where to live. The proposal could impact different regions of the state differently. We have offices in Brattleboro, Vermont, and in Keene, New Hampshire. We've had some current and prospective clients that have asked us about the potential of moving from say Windham County to Cheshire County because of the proximity whereby you can maintain the same social groups and proximity to family, but be subject to lower taxes. I don't think anyone currently residing in Chittenden County would want to drive two hours from say Littleton, New Hampshire to Burlington every day, for example. It is important to note and stress that we have clients that want to live in Vermont for all the great reasons that we all decide to and be residents of Vermont no matter what happens with taxation. So these individuals would absorb the increase in taxation proposed without any desired changes in domicile. Unfortunately, I don't think that I can offer any suggestions that you aren't currently considering. I can offer a few items to ponder. The Massachusetts millionaires tax is a 4% surtax on annual income over 1,000,000 effective since 2023. California's top personal income tax rate impacts income levels around 1,500,000 and above. Certainly the Vermont investment proceeds tax and the 12.7% bracket is currently proposed impact people at income levels that are well below a million dollars. This is a very complicated issue that dovetails with other issues facing Vermont and other states. A New York Times article that I read last week entitled Americans have fled to red states, blue states can win them back notes how state affordability such as housing is a key driver in people's decisions about where to live, and I appreciate the work the legislature and treasurer's office have been doing with housing affordability. So thank you for that. According to the 2022 tax data, 3,560 personal tax returns with adjusted gross incomes of half 1,000,000 or more represented about 1% of all personal tax returns, but accounted for over 30% of all net Vermont personal income taxes paid because such a small number of people have such a large impact on Vermont tax revenues. A lot of due diligence is warranted and I appreciate the process and applaud the committee for involving the local business community in these discussions. If there's any questions I can answer, again, admittedly not a tax expert, I'm happy to do so. Thank you.

[Rep. Bridget Burkhardt (Clerk)]: Thank you. Questions?

[Rep. Mark Higley (Member)]: Sure.

[Rep. Charles Kimbell (Ranking Member)]: So Chris, thank you for the testimony. I'm wondering if in your clients that are living in Brattleboro thinking about Keane, has that actually occurred amongst your client portfolio?

[Chris Cassidy (Trust Company of Vermont)]: I've seen it occur, I wouldn't say it's a frequent occurrence, but I have seen

[Patrick Chittenden (Joint Fiscal Office)]: that. And

[Rep. Charles Kimbell (Ranking Member)]: in structuring your clients trust, then do you often move their assets into a different state where there may be a more favorable income tax treatment without naming names?

[Chris Cassidy (Trust Company of Vermont)]: Yeah. I mean, I think like we have an office in Key, New Hampshire. New Hampshire has slightly different rules. The the the main one being there's no rules against perpetuity for trusts in the state of New Hampshire. So if you were to use a trustee that has a presence in New Hampshire, you could set up a trust there while you're alive or revocable trust. But I wouldn't say that we we mostly work with people in Vermont and New Hampshire that want to be in those states and try to help them use tactics to allow them to stay wherever they want to live, as opposed to telling them to, you know, move money to a different location or physically themselves move to a different location. Generally, those conversations start with, you know, where would you like to be and then what strategies can we provide to help you get there.

[Rep. Charles Kimbell (Ranking Member)]: All right, thank you.

[Rep. Bridget Burkhardt (Clerk)]: What else?

[Rep. Emilie Kornheiser (Chair)]: Thank you so very much for your time today. I really appreciate it. I think we all do.

[Chris Cassidy (Trust Company of Vermont)]: Thank you as well. Again, I really appreciate the discussion and if you have any follow-up questions, I am happy to be available.

[Rep. Emilie Kornheiser (Chair)]: Thanks. As we come closer to more final language, we might be in touch with that as well, if you don't mind.

[Unidentified Committee Member]: Great. Sounds wonderful. Okay. Thank you. Take care.

[Rep. Mark Higley (Member)]: Thank you all.

[Rep. Emilie Kornheiser (Chair)]: I think that is all of the testimony for today. Did I

[Unidentified Committee Member]: lose anyone? Okay. Thanks everyone. Don't think Nolan I was here to answer the questions that Nolan answered.

[Rep. Emilie Kornheiser (Chair)]: Okay. See everyone tomorrow at nine