Vermont Legislature SmartTranscripts:

[Sen. Ruth Hardy (Member)]: Five people were live. Oh, there

[Sen. Randy Brock (Member)]: you go. Now everybody knows.

[Sen. Thomas Chittenden (Vice Chair)]: There's there's absolutely something to it.

[Patrick Chittenden (Joint Fiscal Office)]: It's a good time. It's sensitive. It.

[Sen. Randy Brock (Member)]: Well, proceed.

[Sen. Ann Cummings (Chair)]: So, committee, it's not Friday. Just because I said you might get out early tomorrow and get a snow day. This is starting to feel like Friday afternoon. No snow day. Okay. This is what? Mhmm. The bill went over.

[Patrick Chittenden (Joint Fiscal Office)]: It's a

[Sen. Ann Cummings (Chair)]: $2.82. Yep. And as I went back over the notes I took, it looked like there were thresholds that were different than the federal thresholds and things that might cause tax department some consternation and maybe tax filers. So wondering, you know, just ask Patrick to come back and talk to us some more about it now that we have a little bit of time to digest what it is, talk about, you know, what what we're looking at for amounts and what we might be able to do and so, Patrick and there was a it didn't comply with our capital gains for farms and businesses, I remember. About that. Yeah, a note about that. So the floor is yours, and

[Patrick Chittenden (Joint Fiscal Office)]: Okay, so, Patrick Chittenden, Joint Fiscal Office. There should be a one sheeter with some information up on your website, sharing it. I was just gonna walk through a few different things, and then, Madam Chair, you've asked for a couple of different scenarios to estimate, estimate. So the first thing I just wanted to sort of talk about is sort of who's paying this tax, what does the income distribution look like, and how much are people in different income brackets really contributing towards it. So what we do have is, Verus does publish state by state statistics on some of these provisions. I was able to go, it's from '22, because they're usually on a couple year lag in terms of what they publish, basically when they finalize things. And so in Vermont, there's about 12,000 people who exceed those thresholds, have this investment income, and are paying the federal investment income tax. You can see that a couple of things that kind of jumped out to me when looking at this is this two hundred to five hundred range comprises about 72% of people in the law who are paying this tax, the federal tax, and what they're paying is about 21% of receipts that the feds are receiving from Vermonters. If,

[Sen. Ann Cummings (Chair)]: I think the tax started at income of 200,000, so how do we pick up the 100 to 200?

[Patrick Chittenden (Joint Fiscal Office)]: Yeah, so the, for Mary filing separately, and I believe also for singles, they might be below that threshold. Okay.

[Sen. Ann Cummings (Chair)]: So, With getting singles filing jointly?

[Patrick Chittenden (Joint Fiscal Office)]: Yeah, it is. Alright.

[Sen. Ruth Hardy (Member)]: Yeah. So, if

[Sen. Ann Cummings (Chair)]: we move the 200 up to today's dollars, we would lose the book of our payors.

[Sen. Ruth Hardy (Member)]: I mean, if you were to How about the revenue? Because look at the revenue in the bottom right. 56% of it is for people earning over a million bucks. Yeah,

[Patrick Chittenden (Joint Fiscal Office)]: so 72% of the people in that $205,100 range are contributing about 21% of total receipts for this tax day. But you can see that that nine seventy people who are over a million dollars in adjusted gross income, you know, they make up about 8% of the population, but they're paying over half of what the federal government was receiving from Vermont. If you combine that with the 500 to a million, it's about seventy, seventy nine, almost 80% of the receipts are coming from those households or five, or so above 500,000. So that's sort of the income distribution and how much people are actually contributing towards this tax type. When you had me and Jake Feldman with the tax department, he had brought up Oak Quirk, or maybe something to think about that lives in the personal income tax world, sort of a separate parallel world. Vermont does have something called a capital gains exclusion, and how that works is if you have taxable income, you may reduce your taxable income by up to $5,000 applying it towards capital gains income that you're claiming, which capital gains is an important part of the NIIIT because that comprises about 58% of the income that the feds are classifying as that investment income or that tax. So yeah, the capital gains exclusion is something already in statute. It lives in the personal income tax rule. We do treat capital gains as regular income that you are filling out ten forty form that you file that Vermont uses as a starting point. And this is something included in the tax expenditure report. So for fiscal year twenty six, the forecasted tax expenditure for that exclusion was about $18,000,000 So not insignificant, and it's a relatively large tax expenditure in the personal income tax world, And I think what Jake was kind of talking to you about is something for you to think about is whether having this exclusion, and then in addition, opposing this investment income tax is sort of consistent, cause you're giving a tax break on one side, but you're increasing the tax side on the other side.

[Sen. Ruth Hardy (Member)]: Okay.

[Patrick Chittenden (Joint Fiscal Office)]: I think if there are any other questions to think about that.

[Sen. Ann Cummings (Chair)]: Can I just ask you

[Sen. Ruth Hardy (Member)]: more about that? So the capital gains exclusion, it is the same income stream that would be that is taxed under the n I t t n I I t?

[Patrick Chittenden (Joint Fiscal Office)]: So yeah.

[Sen. Ruth Hardy (Member)]: So What how do you say that?

[Patrick Chittenden (Joint Fiscal Office)]: I don't know. I some people I've heard call it MITT. I don't know if people know what I'm talking about.

[Sen. Ruth Hardy (Member)]: Okay. Yeah. I wouldn't.

[Patrick Chittenden (Joint Fiscal Office)]: It's it's also kind of a mouthful to say net investment income tax. Yeah. We did.

[Sen. Ruth Hardy (Member)]: Yeah. Nit. We did.

[Sen. Randy Brock (Member)]: Okay. Unfortunately, referred to as nit.

[Sen. Ruth Hardy (Member)]: Anyway, is it the same income?

[Patrick Chittenden (Joint Fiscal Office)]: Okay, so I guess taking a quick step back, so personal income tax, all of the income that is being included in this investment income tax, all of that income is just being treated like regular income. It goes through, you know, you understand your deduction, you get your creditors who runs through the income bracket schedule.

[Sen. Ann Cummings (Chair)]: Uh-huh.

[Patrick Chittenden (Joint Fiscal Office)]: So adding this new tax is almost kind of like a surcharge, but specifically on that investment type income, of which capital gains is part of.

[Sen. Ruth Hardy (Member)]: Right. But that investment type income is not is that included in personal income that's

[Patrick Chittenden (Joint Fiscal Office)]: Yeah. It's treated like regular income.

[Sen. Ruth Hardy (Member)]: It is. Okay. And then the exclusion, that's an exclusion from personal income.

[Patrick Chittenden (Joint Fiscal Office)]: That exclusion yes. Exactly. And that exclusion allows you to reduce some of those capital the capital gains income that you have. Okay. Like, getting a person.

[Sen. Ruth Hardy (Member)]: That's a state exclusion.

[Patrick Chittenden (Joint Fiscal Office)]: It's a state exclusion.

[Sen. Ruth Hardy (Member)]: Okay. Is that is there a federal exclusion too for some of that income or not?

[Patrick Chittenden (Joint Fiscal Office)]: That's a good question. I don't believe so, but I should probably be certain before I answer.

[Sen. Ann Cummings (Chair)]: Okay. The first 5,000 and he had said something about business to farm income, but the first 5,000 of capital gains when you sell something is counted as personal income, right, under Vermont law. It's excluded from personal income. No. It's counted as rather than as capital gains.

[Patrick Chittenden (Joint Fiscal Office)]: Yeah, so the capital gains, so the capital gains are treated as regular income, but there's this exclusion that allows you to apply it towards that type of regular income on your personal income tax return. So it's an exclusion for a specific type of income, if that makes sense. Sort of.

[Sen. Ruth Hardy (Member)]: So can I just give you a simple, if I might, I'm trying to figure So this if you make a 100, okay, I guess $250,000, make $250,000 and then you make $50,000 in capital gains? Like, 250 of earned income, quote unquote, from your job. Yep. And then 50,000 in capital gains. This exclusion, the Vermont Capital Gains exclusion allows you to so that's $300,000 of income. The the capital gains exclusion allows you to subtract 5,000 from that $50,000 in capital gains. So then it would be 295,000.

[Patrick Chittenden (Joint Fiscal Office)]: Yeah. You have. Is that correct? Okay.

[Sen. Ann Cummings (Chair)]: Oh, okay. So what happens to the 5,000? It's just not taxed.

[Patrick Chittenden (Joint Fiscal Office)]: It's just not taxed.

[Sen. Ann Cummings (Chair)]: So that's, all right. But we're talking 5,000 here, right?

[Patrick Chittenden (Joint Fiscal Office)]: That's the cap. That's the most that you can, a little more important, though, that's the most that you can exclude from your reported income.

[Sen. Ann Cummings (Chair)]: Okay, so it's not taxed in Vermont. It is taxed federally.

[Patrick Chittenden (Joint Fiscal Office)]: No, this So, not quite. Okay. This is, when you're filling out your Vermont form, and we'll use the same example, you've got 250,000 in wages, 50,000 in capital gains. And this is your Vermont return, this is what you're reporting to Vermont. That exclusion helps, allows you

[Sen. Ann Cummings (Chair)]: So I write reduce 300 down, and then I subtract out the 5,000

[Patrick Chittenden (Joint Fiscal Office)]: Yes, assuming you have enough capital gains to apply

[Sen. Ann Cummings (Chair)]: it to. Right. Yes, yeah. Well, if I only have 5,000 in capital gains, I didn't get very much from my Mickey Mantle card. That, there it is, Mickey Mantle, it's a fake.

[Patrick Chittenden (Joint Fiscal Office)]: It's It's a rugby. It's

[Sen. Ann Cummings (Chair)]: a new antique. New old. Okay. If I get 5 if I owe if I have 7,000, I don't pay tax on 5,000 of that. And it's any kind of capital gains?

[Patrick Chittenden (Joint Fiscal Office)]: I believe there is a holding requirement of three years. I can double check.

[Sen. Ann Cummings (Chair)]: Okay. I have to hold the the investment for three years. I can't. And the total tax expenditure for that is this year's forecast to be 18,000,000. Is that

[Sen. Ruth Hardy (Member)]: what the 18.3 is?

[Patrick Chittenden (Joint Fiscal Office)]: Yes. Yes. That's a tax expenditure. It's revenue we're not collecting.

[Sen. Ruth Hardy (Member)]: Right. Revenue we're not collecting.

[Sen. Ann Cummings (Chair)]: And I have a feeling yeah. Alright.

[Sen. Thomas Chittenden (Vice Chair)]: So Jake's question that you referenced at the start of this, though, my understanding is capital gains is just one piece of NIIT incomes. There's also investment interest and dividends, passive income, rental royalties, non qualified annuities, what little I know about wealth. It's those other four that I'm betting the the top billion the the 56.1% are probably regularly drawn cause capital gains is the triggering of a sale, which is those one time high income years things, where these other ones are more continual. That's an income, rent, royalties, annuities.

[Patrick Chittenden (Joint Fiscal Office)]: Yeah, and that actually brings up something that's important to think about with this tax. About a little less than 60% of the income that is captured by the NIIT is from capital gains, and when you start thinking about timing of sales, right? So that's something that an investor or a taxpayer is gonna have the most control over when they do it. Because they could sell, they've got a stock portfolio, they can always sell just below the threshold that you're selling for them, but that might not be as true if they're selling a business they've owned for thirty years, because it's hard to sell that into pieces.

[Sen. Thomas Chittenden (Vice Chair)]: Change residency that year to avoid the capital gains tax of the moms, right, if we're selling an asset?

[Sen. Ann Cummings (Chair)]: Not if you're selling a

[Sen. Ruth Hardy (Member)]: physical asset though, right? Like you sell property here and you get gains on it.

[Patrick Chittenden (Joint Fiscal Office)]: Yeah, so, like, if you have a house in another state that you sell, you are typically gonna be required to file an on vested term, so return in that state, and then Vermont will allow for a credit for a pass to state to another state on your resident return if your father is arrested. Mhmm. It'd be a similar situation if you were living out of state and did the inverse to follow non resident return in New York State.

[Sen. Ruth Hardy (Member)]: But the capital gain would happen in Vermont, be taxed in Vermont. Might get a credit for it and be

[Patrick Chittenden (Joint Fiscal Office)]: So we did talk to the tax department about how some of that apportionment would work. And generally speaking, and this seems to be how it works in Minnesota, it's all about the domicile of the taxpayer. So if you're in Vermont and you sell something out of state, you're gonna be paying tax in Vermont because essentially you're receiving the income in Vermont. Right?

[Sen. Ann Cummings (Chair)]: Oh, but if you live in Florida and you have a home in Florida and you know you're going to be selling something you own that's located in Michigan or somewhere, even Vermont, You stay six months and five days in Florida, declare it your legal residence, sell it. I don't know what they do with capital gains in Florida, but they don't have an income tax. They might have a very high capital gains tax.

[Patrick Chittenden (Joint Fiscal Office)]: I mean, if you're living in Florida for six months in a day, but you're novicellors among the other ones, you're still gonna be having to file a non resident return.

[Sen. Ann Cummings (Chair)]: If I'm living in Florida, I have a second home here. Usually I live here for eight months, but this year I'm only gonna live here for five and a half months because I'm planning on selling something I'm gonna make a lot of money off, and we're talking about folks that have resources. So for this year or this year or next year, I spend six and a half months in Florida. I file it as my legal residence. I'm a resident of Florida when I sell this. Why would I I wouldn't file with Vermont. Right? Unless maybe if the business we should have the I mean, if the business were in Vermont, maybe. But if the business is in Michigan, I don't know. But this we don't I don't know. We don't need to worry about this. That's why we're paying the tax department.

[Sen. Ruth Hardy (Member)]: But but I think pat Patrick Patrick is the point is that you would have to file a nonresident claim here, and that then you would have to pay some

[Patrick Chittenden (Joint Fiscal Office)]: Can get a can I get a portion based on the the time that you're

[Sen. Ann Cummings (Chair)]: If I don't live Yes? You Is this just not my least residence, but I come here to ski, and I own a home here?

[Sen. Thomas Chittenden (Vice Chair)]: If the asset was domiciled.

[Patrick Chittenden (Joint Fiscal Office)]: It's more about the domicile of the taxpayer.

[Sen. Thomas Chittenden (Vice Chair)]: Can I rephrase your question? Because I like your question, I'm really trying to understand. Say I lived in Vermont my whole life, 55, 60 years old, and I'm ready to exit. I wanna cash out. So I'm gonna sell either my house, my property. I got a business. Okay? I got the cold hollow cider. My uncle Eric, stayed in Vermont. Let's say he's about ready to sell his business and he built up his whole life. If he relocates, if he lives in Florida for six months and a year for a couple of years and he sells that business that's located in Vermont, would he still have to pay any increased Vermont NAIT tax?

[Patrick Chittenden (Joint Fiscal Office)]: The question seems a little easier to me in the personal income tax world, because in that instance, you would be required to file your non resident return if you were not in state for long enough. And one thing also to remember, so if you sell your business in December '4 and you move January '5, you know, when you file your taxes in April, it's gonna be under the tax year 'twenty four, right? And your residency during that time period would have been in Vermont.

[Sen. Thomas Chittenden (Vice Chair)]: Okay, same scenario, but let's say that business was located in New York, where he lived in Vermont all his life, he owned that business in New York, but now he relocates to Florida, the assets in New York, he's now a Florida resident, would he have to pay when he sells that multimillion dollar capital gains, the Vermont NIPT tax? These are starting

[Patrick Chittenden (Joint Fiscal Office)]: to become questions that I often ask for reassurance from.

[Sen. Ann Cummings (Chair)]: Yeah, think you're going to have the attorneys from the tax department talk to us about it.

[Sen. Thomas Chittenden (Vice Chair)]: But it's an important question. It is important because this is where behavior will go on.

[Sen. Ruth Hardy (Member)]: Right. But I also think and I think I'm hearing this correctly. So, like, if you're if you live in Vermont for four months of the year and you live in Florida for eight months of the year and you have a capital gain, you have income of any kind, you have to file a nonresident file in Vermont and pay the proportion of the time you live for four months of that income. So if you make a $100,000 and let's say it's e evenly split nicely, 40% of it would be income in Vermont and a third of it would be income in Vermont and two thirds of it would be income in Florida.

[Sen. Thomas Chittenden (Vice Chair)]: But if they just move to Florida and don't even keep the four months here, do they still avoid that Vermont specific NIIT?

[Sen. Ruth Hardy (Member)]: For selling something that wasn't Vermont, that's a property in Vermont. Andy or

[Sen. Ann Cummings (Chair)]: I think we could have But there are other, like, property trends Yeah. Because this did a lot came up during COVID, and it comes out with working remotely. If you were a Massachusetts resident and you were working in Massachusetts remotely Yeah, remember that conversation. To Vermont, then you had then it got apportioned. You owe because your legal residence was Massachusetts and you were just hiding out here for a few months.

[Sen. Randy Brock (Member)]: The question, does it get done portionally based on the amount of time you spent in each place during the year, Or if you had a situation in which you worked in Vermont, working on a drugstore counter for four months, and then you moved to Florida and you became CEO of a company in which you made a bunch of money in Florida, you made very little in Vermont. Do you apportion it on the basis of the number

[Sen. Ruth Hardy (Member)]: of Absolutely, bonds you lived in a

[Sen. Ann Cummings (Chair)]: we're going to have the advantage. Is there a lot of nuances here? In Massachusetts, there are a lot of people that were working in Massachusetts but live in New Hampshire.

[Sen. Randy Brock (Member)]: Yes.

[Sen. Ann Cummings (Chair)]: And during COVID tried to call. They were not going to Massachusetts. They were working from home in New Hampshire, and Massachusetts was either passed or was trying to pass a law that would cause them to have to pay tax in Massachusetts.

[Sen. Randy Brock (Member)]: Well, know for a number of courts said, that I experienced working in Massachusetts.

[Sen. Ruth Hardy (Member)]: So As

[Sen. Randy Brock (Member)]: a Massachusetts employer and living in Vermont, I always paid an income tax to Massachusetts for the period of time that I was there. But then I remember when I spent a couple years working overseas, I still paid Vermont income tax Yes. For the entirety of that period.

[Sen. Ann Cummings (Chair)]: If you are an American citizen, my son who hasn't earned a cent in this country in twenty years, he lives in Canada, has to file American income tax forms, and that was one reason his father-in-law, who's a tax attorney, advised that they not get dual citizenship for their kids because unless the kids decided they were going to live here, if they were American citizens, they have to file tax forms every year even if they have never earned anything.

[Patrick Chittenden (Joint Fiscal Office)]: So If we're

[Sen. Randy Brock (Member)]: if we're looking at a variety of things, there's new income tax This is clearly something which we're going to need some advice.

[Sen. Ruth Hardy (Member)]: To a point that Martine is trying to make. Do you want to make that or do you want go? No, go ahead. Chart that you have there, the federal net income, that's current law. That happens already. The next box is current law. That happened already. So these questions have already been answered. So that's why we're going to

[Sen. Ann Cummings (Chair)]: have the tax department tell us what's It's

[Sen. Ruth Hardy (Member)]: not like a whole new thing. Okay,

[Sen. Ann Cummings (Chair)]: the proposal is that we move, that we set up that Vermont tax, there's a Vermont state tax. Right now, Vermont doesn't tax And this, the proposal is that we would There

[Sen. Randy Brock (Member)]: have your tax.

[Sen. Ruth Hardy (Member)]: Isn't there another box down below? Yeah, have another box. Are we known for that? Yeah.

[Patrick Chittenden (Joint Fiscal Office)]: Then, which is real quick comment about the federal version of the tax. One of the nice things for them is they don't have to worry about apportionment, right? So I have this estimate done four different ways. One is on the expanded version of the NIIT. So we're talking about proceeds tax. Now it's essentially just the same thing with a different name, but it's expanded, so it has a couple of, a few different additions that Kirby walked you all through at the end of the day, and so as is proposed in the bill in its current form, we're estimating this to be about just shy of $60,000,000 additional revenue to the state. Just highlighting there, this is the same, this is based on the same income thresholds that the federal version is done on, so if you remember the top box, that's the 12,000 individuals we estimate would be paying this tax. And so, on the platform of the expanded version with the additional add ins, but increasing that income threshold to about $500,000 That would reduce the number of taxpayers down to about 3,200, and we'd estimate about $4,647,000,000 dollars in additional revenue. And then the last two are, again, the first one is based on the federal income thresholds. The second one is based on the 500,000 income threshold. But these do not include some of those additional add ons that the federal version of the tax does not have.

[Sen. Ann Cummings (Chair)]: Okay, so basically, if we did the wealth proceeds tax with the federal income thresholds, that's the 200,000, which people are used to pay, then we would get $48,649,000 out for this one is the bill proposes to send it to school construction, right? That's what I thought, and then

[Sen. Ruth Hardy (Member)]: I just said today only the second home tax would go to Second home tax

[Sen. Ann Cummings (Chair)]: is the bill. That bill said school construction.

[Sen. Ruth Hardy (Member)]: Yeah, know. That's what I thought.

[Patrick Chittenden (Joint Fiscal Office)]: I believe, if I remember correctly, there was intent language suggesting that that, but there was no mechanism to, like, officially dedicate it to a special fund for specific use. There is

[Sen. Ann Cummings (Chair)]: a special fund in 'seventy three, there's no money.

[Patrick Chittenden (Joint Fiscal Office)]: I don't think there was any

[Sen. Ann Cummings (Chair)]: 20 pages of verbiage, but no money. Okay. But we will have 50,000,000, give or take 5,000,000.

[Sen. Ruth Hardy (Member)]: So that's 60,000,000?

[Patrick Chittenden (Joint Fiscal Office)]: As the bill's currently drafted, that's that 59.6 that I have highlighted there. Yeah. Yeah. That's because

[Sen. Ann Cummings (Chair)]: wait. Because that picked up some things or had Additional stuff. Additional stuff, I'm thinking that as close as if all people have to do is file the same form with the state that they filed with the feds, it'll be a lot easier if you have to go back and recalculate because there's a different income threshold or a different percentage, but the simpler we can make it, easier it would be. And I'll just throw out, the only other state that has an income, like

[Patrick Chittenden (Joint Fiscal Office)]: a state specific income like this is Minnesota, and they do adhere more to the federal definitions for income that's included. It's just on a million dollars or

[Sen. Thomas Chittenden (Vice Chair)]: more than million dollars. More than a

[Patrick Chittenden (Joint Fiscal Office)]: million dollars of investment income. Okay. So that's not even including your salary or anything else you might be able get comfortable.

[Sen. Ruth Hardy (Member)]: Alright. Go first. Patrick,

[Patrick Chittenden (Joint Fiscal Office)]: do you have

[Sen. Ruth Hardy (Member)]: a sense of how other states are responding to the federal tax cuts at all? Is there like a general,

[Sen. Ann Cummings (Chair)]: you probably don't, but I thought

[Sen. Ruth Hardy (Member)]: I would ask, was just curious.

[Patrick Chittenden (Joint Fiscal Office)]: Yeah, no. So there are definitely some states that have have them decoupling certain specific provisions. One that comes to mind, Michigan just decoupled in a few areas relating to corporate income taxes. I think Alabama also recently did some decouple, had a few provisions related to corporate income taxes. And there's a lot of other states that are, you know, currently in their legislative process now that are taking testimony and thinking over, can this stuff that's flowing through to us, how does that fit in the context of our ability to maintain our budget? So there are states, I've predominantly seen a lot of action being taken into the corporate, specifically in income tax world. However, part of the reason for that is a lot of states are linked up to a point of, like, the definition of what, you remember the charts I came in with a month ago. So, the sort of above the line, below the line discussion, a lot of the, you know, no tax on tips, overtime exemptions, those are happening in ways that don't directly affect state personal income taxes. There are a few that it does. Some states like it up to taxable income rather than adjusted gross income on your apartments. But yes, there have been other states that are making changes based on expected impacts from the chart.

[Sen. Ann Cummings (Chair)]: We aren't losing a huge amount of money with the income tax change, because

[Patrick Chittenden (Joint Fiscal Office)]: I would pump that. Well, we are working on updating those estimates, you all saw. We've been getting more information, which has definitely helped us get a better understanding of sort of scope, I guess we'll say.

[Sen. Ann Cummings (Chair)]: Okay. Well, we should know that too.

[Patrick Chittenden (Joint Fiscal Office)]: Yes. It's working fine. It's supposed be but

[Sen. Ann Cummings (Chair)]: I suppose it's a question from Jake and the tax department. Do we know how much money we're losing or are we?

[Patrick Chittenden (Joint Fiscal Office)]: Jacob has been working with the tax department to sort of update those estimates with the better information that we have.

[Sen. Ann Cummings (Chair)]: Okay. Because since the personal income tax, these are big. Personal income tax,

[Patrick Chittenden (Joint Fiscal Office)]: in we've our scoring, we seem to be largely insulated from the changes that we made. It's really more in the corporate income tax world where we are definitely seeing some stuff that's been sold Okay.

[Sen. Ann Cummings (Chair)]: Well, as soon as you get a handle on that

[Patrick Chittenden (Joint Fiscal Office)]: Yeah. And we should be done with the update soon so I can come talk to you about that, though. Yeah. Yeah. Okay.

[Sen. Thomas Chittenden (Vice Chair)]: So an important piece for this, if slash when this conversation goes forward, I'd like to really crystallize is because you cautioned twice, so did Jay. Capital gains is very strategic when wealth can decide when to incur those things, what the residencies, they talk to wealth advisors. But when it comes to NIIT, there are a lot of other types of income that aren't the same as capital gains, which is again, investment interest dividends has been not qualified, it's the continual flow of capital to be wealthy continuously, because all I hear too is that our really high income owners in Vermont, a large, large number of them are just for one or two years when they have those events, so to speak. So my question will be, if this goes forward, can we discriminate on the curve of those types of incomes and segregate capital gains out and only look at the other four types of NIIT incomes that are more continual, incremental, the dividends, non qualified annuities, rentals and royalties, the way that we would get this from

[Patrick Chittenden (Joint Fiscal Office)]: the Feds, if there's no discrimination between those types of categories. Just to make sure I'm understanding right, are you saying if you were to if you were to do a wealth grossing tax, but not have that apply to capital gains? Correct. I mean, we have a way to, we could estimate it for sure, because, you know, we know it's about 58% of this income is capital gains, so if we can back that out, the line items of the business annuity income, interest income, that I'm not sure about.

[Sen. Thomas Chittenden (Vice Chair)]: That'd be a question of the tax department if they could logistically implement that. Well, maybe. Yeah. Right?

[Patrick Chittenden (Joint Fiscal Office)]: I mean, you you do see that, you know, Minnesota's doing it. Right?

[Sen. Thomas Chittenden (Vice Chair)]: That's one state, though. That gives me some positive They're

[Sen. Ruth Hardy (Member)]: doing what? The whole thing?

[Patrick Chittenden (Joint Fiscal Office)]: Yeah. They have they have this type of task. Oh, really? But they are still you know, it's still pretty new, so we're sort of waiting to hear a little bit more about how the administration was going. They just don't, they don't have enough information yet to really tell us how, if think it's Yeah, this is new. Yeah, that's the it goes. Yeah.

[Sen. Ann Cummings (Chair)]: Oh, yeah. Okay.

[Patrick Chittenden (Joint Fiscal Office)]: Yeah, and I guess just to comment, everything that is being included in this loan proceeds tax, the mark does already tax on in the personal income tax loan. This is effectively, I guess you can kind of think of it like a surcharge on this type of a family. Okay. With extra steps.

[Sen. Ann Cummings (Chair)]: Alright. That's an interesting reason. Okay, well we will ask the to come over and talk to us about not to spend time with if you sell something in Florida because I'm not about to do that.

[Sen. Ruth Hardy (Member)]: Who did that? Why I haven't That's

[Patrick Chittenden (Joint Fiscal Office)]: all Well, there's

[Sen. Thomas Chittenden (Vice Chair)]: lots of other accounts in this.

[Sen. Ann Cummings (Chair)]: So we will talk about that.

[Patrick Chittenden (Joint Fiscal Office)]: Potentially, I know he's coming to testify. The voters.

[Sen. Ann Cummings (Chair)]: Yeah. Capital gains and

[Patrick Chittenden (Joint Fiscal Office)]: Not as

[Sen. Ann Cummings (Chair)]: not as often as it's something. And how could they administer it? And if we made changes, could they administer Okay.

[Patrick Chittenden (Joint Fiscal Office)]: And again, just something sort of philosophical for you all. I know that there's no enabling language dedicating this for stool construction, but generally speaking, when you're talking about, and I'm not saying that this is school construction, but something where there's gonna be a consistent need for revenue to fund. Generally, if it's consistent and sort of predictable, broader base tax are usually good, and generally narrower base taxes can be more volatile.

[Sen. Ann Cummings (Chair)]: If the economy crashes, this will probably crash with it. And Yes. Yeah. That we'll have to look at. Would that fund work if if we are on the hook to make payments, or is this a one time subsidy to the school to pay off? Because what we were told is we can't pledge the full faith in credit and that the treasurer's office was asking us to say schools could bond through the municipal bond bank and as we had the money, we would give them a grant to pay it down, I think as far as that dispatching got, but there were no commitments and I think this yeah that would be at what are we on the hook for is it making the bottom payments or is it we'll just pay down whatever we can come up with this year, we'll pay down the total amount and appropriate it to the yeah. Or we'll give each school a grant proportion out, so. And if I'm oh, sorry. I just

[Patrick Chittenden (Joint Fiscal Office)]: if I may add quickly, what I just said is not a comment on the validity of this tax type It's for that purely something you should make sure you're honestly always considering when thinking about taxes and the the suitability question.

[Sen. Ann Cummings (Chair)]: It's better we hear it from you that three years from now when something really bad happens. So I think we've got enough to go on the list.

[Sen. Thomas Chittenden (Vice Chair)]: Something you just said, and I'd love to know Senator Gulick has a different perspective from her work on the school construction task force. I've heard the treasurer express and the previous one not wanting to pledge the full faith and credit of state or school construction aid. I'm under the impression they used to, and that's what's what lowered the interest rates for schools. And so I just, I was, I want to question that assumption because pledging the full faith and credit of the state of Vermont to get a lower interest rate to build schools, they're still gonna pay off the schools, but a lower interest rate seems to be, like, exactly what I want us to do. Plus, sitting now they're coming to us that they've got so much cash. They want more flexibility just to use that cash for other investments. I'm just wondering if we should question that policy and I don't know if that came up on your task force at most.

[Sen. Ruth Hardy (Member)]: It definitely did come up,

[Sen. Ann Cummings (Chair)]: but I think you're probably better poised to answer the historical question. My first year here I was on institutions and it was the year we ended. Oh, instruction. I remember that one because we had used up our bonding capacity. And I know

[Sen. Thomas Chittenden (Vice Chair)]: Different times. Right?

[Sen. Ruth Hardy (Member)]: Yeah. 2007.

[Sen. Ann Cummings (Chair)]: But we had to approve the bonds. Mhmm. But when we were coming out of that era, we were building schools that we were building out for the baby boom. Those schools are now thirty, forty, 50 years old. The other ones are a 150 years old at Bengal Bridge. Some of them were better constructed than others and they've been through their lifespan, so now we're talking major maintenance like roofs, which costs thousands of dollars. And

[Sen. Thomas Chittenden (Vice Chair)]: I don't know much, but if we go forward with the grand plan with consolidation, I think it'll make that hill a lot easier to swallow if it's coupled with pathways to build new schools strategically optimal locations that the kids would benefit. So it

[Sen. Ann Cummings (Chair)]: just seems Expanded present one.

[Sen. Thomas Chittenden (Vice Chair)]: Part of the discussion.

[Patrick Chittenden (Joint Fiscal Office)]: Yeah. We're renovating on the

[Sen. Ann Cummings (Chair)]: Yeah. Renovate what you've got. Has anyone been I finally got a tour of Barrytown Schools in the basement. I walked through the halls. There was just one huge open classroom, and now they've put up things like filing cabinets to divide out, but it's all you can hear every class in was in I that was interesting. And U 32 was that way. They were both built at the same time.

[Sen. Ruth Hardy (Member)]: Late sixties, early seventies, open classroom. It was a Yeah. It was a trend.

[Sen. Ann Cummings (Chair)]: And it's fallen out of use, but Yeah. These schools can use some help to build. It wasn't a good idea. Yeah. It's loud. Yeah. Yeah. It's very loud. Very any kid that is easily distracted is gonna have

[Sen. Ruth Hardy (Member)]: a problem. The walls at the Macy's campus don't go all the way to the ceiling.

[Sen. Ann Cummings (Chair)]: That's that's this one got, like, an open

[Sen. Ruth Hardy (Member)]: No. Yep. It's really problematic. Anyway Ways of anxiety.

[Sen. Ann Cummings (Chair)]: We need, yeah. So we will talk to the treasurer's office and think about I think that's a great,

[Sen. Ruth Hardy (Member)]: I think speaking with the treasurer's office is a great idea. They were very helpful through the iterations of school construction, task force committees, etcetera. But if we do want to expand our knowledge of school construction and the issues that are facing that landscape. Bob Donahue is a great person.

[Sen. Ann Cummings (Chair)]: We checked it in last year,

[Sen. Ruth Hardy (Member)]: didn't we? We did, but we did have fun together. Okay. He was very narrowly focused that day. Could just it

[Sen. Ann Cummings (Chair)]: would the AOE would let him come in

[Sen. Ruth Hardy (Member)]: and just, like, speak to us in general.

[Sen. Ann Cummings (Chair)]: Be really helpful. Well, I think I'm gonna give it time because Phil's gonna get out. And before we dedicate it to school construction, I think we need to know if it's viable. Mhmm. And I have a feeling we might have to fight to hold on to the money before it gets out of here, but it's expanding on a present program, and I think it would be more acceptable to those who are taxing if we did dedicate it to something on school construction or maybe transportation, which is another big goal.

[Sen. Thomas Chittenden (Vice Chair)]: Funding school construction is one thing, but the pledging the full faith of the state to get lower interest rates, that's not necessarily funding it. The school's still funded, but they just get a bit more favorable terms.

[Sen. Ann Cummings (Chair)]: Yeah. They get that, but they'll get that going through the municipal bond. State. Okay. Yeah. The bond The state, that's why everybody

[Sen. Thomas Chittenden (Vice Chair)]: Same.

[Sen. Ann Cummings (Chair)]: Beth Pierce was so focused on having a triple a bond rating because and that was the deal. If we spent down all the reserves in the ed fund, then that would probably immediately affect our bond rating because that's our savings account they want us to have so we won't default, and that's why there are funds sitting around here that don't get touched except in an

[Sen. Ruth Hardy (Member)]: emergency. Emergency. So And And you we have have Michael, Michael calling in, right, from

[Sen. Ann Cummings (Chair)]: the bank last year? Yes. And we will have yeah. And we will talk to them, and then we will think on where that goes and maybe talk to some of our counterparts like in the education committee. Do not talk to anyone in housing.

[Sen. Ruth Hardy (Member)]: What's the word about it?

[Sen. Ann Cummings (Chair)]: They hear this money floating around, but this we are looking to help with education. So we will see where it goes. Thank you. Thank you. Okay.