Vermont Legislature SmartTranscripts:

[Sen. Ann Cummings (Chair)]: We are live. It's just finance. This is the February 27, and we are going to start we're set to wrap things up. We've got four days left after today, and we'll have a discussion at the end about which bill we're gonna get out. But we start out. This is part of our discussion on migration of high income individuals. I just there was an article came this morning that I saw that Massachusetts is losing younger populations. Has it hit their labor market yet? It's not a big

[Sen. Scott Beck (Member)]: Did they offer a hypothesis in Central Washington?

[Sen. Ann Cummings (Chair)]: No.

[Christopher Mattos (Committee Clerk)]: They say where where they're going?

[Sen. Ann Cummings (Chair)]: No. They said the Carolina North Carolina and Texas.

[Sen. Scott Beck (Member)]: I don't know. I I used to move down that area. Yep. Yeah.

[Sen. Randy Brock (Member)]: I've been for past ten plus years.

[Sen. Ann Cummings (Chair)]: No. Texas had the biggest in migration. Not talking for yourself.

[Sen. Scott Beck (Member)]: Perfect. Yeah. Austin's like the sixth biggest city in The US now or something. Mhmm. Yeah. Well okay.

[Sen. Ann Cummings (Chair)]: So we're gonna have this we'll have this we have Christopher Young, who we are. Doctor. Young, welcome to Senate Finance, and we were told that there wasn't a whole lot of academic study, and I believe public assets brought your name to us. So, the question that comes up is, do tax increases cause people with wealth to perhaps move? At what level might that happen or does it not happen? Whatever your study has revealed. And we just ask you to introduce yourself for the record and then the floor is yours.

[Dr. Christopher Young (Professor, Cornell University)]: Great. Thank you. Thank you for the invitation to speak with you today. My name is Christopher Young. I'm professor of sociology at Cornell University. Been studying millionaire tax migration for a long time and have published fair bit about it. I thought I would start today with case study of New Jersey, is maybe the most sort of immediately relevant to your case. New Jersey being a small state, sort of bordering lower tax states. So

[Sen. Ann Cummings (Chair)]: Well, we have New Hampshire.

[Dr. Christopher Young (Professor, Cornell University)]: I'm seeing that I'm not allowed to share my screen.

[Sen. Ann Cummings (Chair)]: We'll get that fixed.

[Dr. Christopher Young (Professor, Cornell University)]: Yeah. Yeah. New Jersey passed, a millionaire tax back in 2004. That's when I was starting you know, I was at Gretchen in Princeton at the time, and I reached out to well, from our professors to start to kick off this study, and we agreed to do it in exchange for data access. Okay. I'm able to share now. Okay. Bear with me for one moment. Alright. Looks like this is all set

[Sen. Ann Cummings (Chair)]: up. Yep.

[Dr. Christopher Young (Professor, Cornell University)]: Let's talk about New Jersey. So yeah, this was published back in 2011 with my colleague Charles Varner and I, we worked with the New Jersey Division of Taxation, worked with their microdata, so hands on access to tax records on every top income earner in the state. People who move away from New Jersey file a part year return in the year that they move. So observing migration is quite straightforward in New Jersey tax data. So this was the tax that they passed in 2004. They called it a millionaire tax. And you know this paper uses that language though. You know it does kick in at $500,000, not a million. But there you go. I didn't choose the language here. But it raised the tax by 2.6 percentage points on everything that you earn after $500,000 So income below that was not affected. So here's how this graph just sort of shows how the tax affects your actual tax burden rather than the marginal rate, which I was showing you before. But basically after income that you're above 500,000, it sort of progressively converges to the higher rate. So that's key to understanding the impact of this tax on migration. Context, you know New Jersey is part of the New York Metropolitan Area. They have Connecticut over here. These are the sort of tax comparisons. Connecticut over here is the top tax rate of 5% at the time. Pennsylvania running along across the whole border of New Jersey had a flat tax of 3%. So you know you imagine a move from sort of Bergen County to Fairfield, Connecticut that's a very small move Gets you equally close to Manhattan, but at a substantially lower tax rate. And then a little bit further out from New York City, but very close to New Jersey. We have this 3% tax rate. So there's a lot of talk about this being the context of, there's this ready movement opportunities. And the governor at the time was confident that this migration would happen. Okay, so let's look at what we see in the data. Again, so this is showing the number of top filers, people who made $500,000 a year. So they're sort of looking at the millionaire population in New Jersey. This dash line shows where the when the tax kicked in. So, we see growing numbers of top income earners despite this tax increase. So even if we do see some migration, this is a very large increase in the population of millionaires who are moving which is certain to swamp any migration.

[Sen. Ann Cummings (Chair)]: I just got a one question.

[Sen. Scott Beck (Member)]: Just a clarifying question. How did you define a millionaire on this graph? Was it w two or assets? How did you define a millionaire?

[Dr. Christopher Young (Professor, Cornell University)]: Yeah. Adjusted gross income. So yeah. But it is $500,000. Again, I'll just sorta go back to this. You know, again, it's, you know, in the context of the policy discussions, they they called it a millionaire's tax and so this is just language we're using but you know, it's if you're above this threshold in the in the in your adjusted gross income. So, that we can see that indeed the tax would affect you.

[Sen. Ann Cummings (Chair)]: Okay. Thank you. We have another question.

[Sen. Randy Brock (Member)]: You were looking at income changes, did you look at where people came from before they moved in? In other words, did you look at the migration in both directions as to the tax effects?

[Dr. Christopher Young (Professor, Cornell University)]: I should say that what we've seen so far is just growing millionaire population. That does not come from migration. The thing to keep in mind is that most of the dynamics around the millionaire population come from income. People earning over 500,000 or dropping in and out of that sort of threshold, movement around that threshold, there's much lower migration rates. So the next slide I'm going to show you is about migration. To start to answer that question, didn't see in these data, we don't see where people are going, where people came from, we just see net migration for New Jersey. As I pivot from this case study to the broader US context using IRS tax records, I can speak to that question. But let's look at migration. So this is where we're expecting to see effects. The previous slide was just sort of some context. So this is in the 2000, 2003. So this is three or four years before the tax was passed and this is the migration rate, the net New Jersey migration rate at income levels. So number of out migrants per thousand households. And we see that there's net out migration out of New Jersey among high income earners, but this is before the tax kicked in. And we're going here all the way up to people who make $8,000,000 a year. So this was the context. So what happened when the tax was passed? Well, expectation of course, is people on the left side of the graph here, they weren't affected by this. So what we're expecting to see is rising out migration in the later period after the tax was passed among this group. Essentially, So we're using this group as a control group. They were not affected. This is like the ninety fifth to the ninety ninth percentile of the income distribution, as sort of a control group for the top 1% that was affected by the tax. This is what we actually see. So, what you call this, the dashed line is what happened in migration, what happened in migration in the four years following the tax, which is an across the board increase in migration, but nothing that you could really attribute to the tax coming into effect. You can see this gray bar is where the tax started to kick in. We see sort of basically parallel shift. Tax increased on some people, but not others, but there wasn't a change in migration that was sort of specific to those people that were affected by the tax.

[Sen. Ann Cummings (Chair)]: That's four questions.

[Dr. Christopher Young (Professor, Cornell University)]: Doctor. Beck, I don't

[Sen. Thomas Chittenden (Vice Chair)]: see your slides in her slide decks, you might be answering this in the coming slides, but I've been curious, are you gonna compare this to the rest of the country because I think the better control group might be a state that didn't have this tax. I'm assuming you probably compared it to that. I'd also just overlay that if I'm not mistaken, February 2003 was really the wake of the dot com bust in 2004 to 2007 was a neck a relative economic boom time where we saw lots of more millionaires across the whole country. So have you overlaid it with other states that didn't take this tax change?

[Dr. Christopher Young (Professor, Cornell University)]: Yeah, so you're certainly correct about these time periods. 2001 was deep recession and by 2003, 2004, we're coming out of this recession. That's partly why we're seeing a growing millionaire population. So with this particular case study, we only had the New Jersey tax records. So there wasn't, we had an agreement with the New Jersey division taxation to do this analysis, but not with any other states at the time. So I'm gonna pivot to the full US where we work with IRS tax returns for all states, all millionaires, and we can see.

[Sen. Randy Brock (Member)]: Can I ask you just one question before you leave New Jersey go to the world? When you look at people who are high income earners, did you look at and did you have any data on what percentage of those people were people who were millionaires only in one year? In other words, people for example who got windfall such as selling a business or something of that nature, but they were not the classic millionaire that one thinks of over time that has a high income.

[Dr. Christopher Young (Professor, Cornell University)]: This is absolutely true because most people who show up in the top bracket are experiencing a temporary spike in their income. So exactly as you said, perhaps they sold a business or something they're not earning this top bracket income year in year out. It's a small subset of people who are. In other research I have focused on people who make million dollars a year for three years, for eight years, for essentially the whole window of observation. And you see small differences in their migration rate. I think in the direction you might expect that they're a little bit more sensitive, but again, this is moving forward to a different study, still not finding strong migration responses anywhere. We also looked at people who were sort of very high income, but of retirement age. So we expect that they might be more mobile. We looked at people who earn most of their income from capital gains. So from basically stock market earnings rather than wages and salaries, most high income burners are still folks with an office job and are being paid in wages and salaries. But you expect that people who are making money from capital are arguably more mobile. Again, we see sort of modest differences when you start breaking out by these different groups. So maybe I will pivot, I was, other thing. So let's see. Just general, just to wrap up the New Jersey case, we've got a growing millionaire population even with some out migration that's happening at the margins. The population growth of millionaires over this time period was about 35% compared to a couple of percent loss due to migration. So that's the bigger story. Tax flight estimate, I've been calling it basically no effect. Our precise estimate is one millionaire per 2,000 moved out of New Jersey for tax reasons. And it raised about a billion dollars in new revenues each year and produce sort of a modest reduction in after tax income inequality. The chief economist in New Jersey, under Governor Christie did not like our study. And so, these top economists replicated this stuff. And I would just say that their point estimates were all very similar to ours. A couple that were smaller, a couple that were a little bit bigger. But their point estimates were within the 95% confidence interval, you'd say, of our study. They got basically the same results. So I think that pretty much settled that. Okay, so there's other If I should move on, there are of course other states that have passed taxes like this. New Jersey was maybe the first in this period, but a lot of states have. And of course there's also a lot of states that have no state income tax at all. Of course, your neighbor in New Hampshire does tax capital incomes, but not labor incomes, which again, most top income earners, the working rich we call them. Okay, so broader question here, how should we think about top income earners? Are they sort of mobile millionaires searching for low tax places to live? Or are they more like embedded elites that are reluctant to migrate away from places where they've been highly successful? So I've studied a lot over the years, a few probably most recently 2025. These studies all work with IRS data. We have a book and we can talk about the title of this book and you know, a little bit more nuanced interpretation in a minute, but I'll just very briefly tell you about the data. This from the first study we did, we originally looked at 1999 to 2011, all millionaire tax filers, that's people with adjusted gross income of a million dollars or more in a single year. It's about the top 0.3% of income earners in the country. And then I have updates of this to 2023 in a in a follow-up study was just published. 45,000,000 tax records. That's from 3,700,000 unique millionaires who were filing over nearly a dozen years. And you know we compare them to the general population just to sort of ask how much are the rich different. And now here we're measuring migration both residency and migration as just the state from which they're filing their federal tax returns. So if they filed in Vermont in one year and then in New Hampshire in the second year, then we're gonna call them migrants. That's how we're defining migration. Okay, so tax migration actually breaks down into sort of three simple questions that we'll walk through here. First question to understand this, where do millionaires live in general? Like, do they have a preexisting tendency to favor low tax states? Because of course, the basic features of the state tax system have been in place for a very long time. Like New York and California have essentially always been states that had higher taxes on the rich. Texas and Florida have never had a state income tax system. So, this is the map of millionaires per thousand population. So the answer is of course, this sort of, let's call it the Boswash Corridor, is where the highest concentration of millionaires are. Now we wanna sort of ask how much this is sort of influenced by the tax rate. So this is this graph. So here's the effective state income tax. So what percent of your total income do you pay in state taxes? Again, time when we did this study, a couple of these have moved a little bit. But, you know, and on the y axis we have the millionaires per thousand population. So if we were expecting to see a preexisting pattern of millionaires favoring low tax residency, this graph should be downward sloping. We'd have the low tax states, the Florida's and New Hampshire's and Texas and Nevada's should be all high up here. And generally this pattern will be declining as states increase the type, but we just don't see that pattern at all. There's no relationship. So, millionaires are scattered about the country. They live in different places for different reasons. Of course, there's variation. Connecticut's, for example, Ohio's. But it doesn't seem to have much to do with the state taxes. Just face validity of the tax flight story is not that strong, right?

[Sen. Ann Cummings (Chair)]: Okay, got another question.

[Sen. Thomas Chittenden (Vice Chair)]: Doctor. Remarkable, Young, I really appreciate this presentation. I wonder on this slide, perfect, if you were to exclude the New York, New Jersey, you called it a corridor, I didn't catch that name, Boschholder Corridor, but if you were to exclude the states near the financial center of, some would argue, world and California which also has it, I almost do see a downward slope for the rest of them excluding those outliers so to speak. Have you ran that correlation, that trend line extracting out those concentrated states around New York City?

[Dr. Christopher Young (Professor, Cornell University)]: I haven't done that, you could visually do that, they're all up here, there are states that have a lot of millionaires in them, and also have high taxes. So, you just sort of mentally do it. So, let me just say on methodological grounds, we wouldn't want to do this. It's called sampling on the dependent variable. But even if you sort of mentally did that, I'm happy to go through this one by one. A principled way to do that would be to one by one go through the dataset and sort of drop any one state and sort of see how it affects the slope. You can see that it might, it does actually technically slightly upward sloping right now. And if you took out some of these states, probably the New York and California, it might have a slight downward slope. But again, there isn't a great reason to do that. And again, these states, New York and California, both first started taxing essentially millionaires or very high income earners back in the 1930s. So, that is almost one hundred years of experience with taxing high income earners. And they are still going strong, let's say. The centers of American capitalism arguably. Okay, this is just sort of a background. Now we want to ask the next question. The next piece of this is just are millionaires highly mobile? The basic answer here is that migration rates actually decline with income. It is not high income people who are the most mobile, it is low income folks. I think the simplest way to understand this is migration is sort of a process that's not driven by people who are really economically comfortable in life. It's driven more by people who are trying to find a foothold in economic life. And the more that people are sort of doing well economically, the less likely they are to move. This is also tied up with life cycle effects. As you get more established in your career, you're less likely to move. Now this is for the general population. Now let's plug in the millionaires, this sort of top point 3%. So you do see a grain of truth in the millionaire mobility hypothesis that they are a little bit more mobile than say the upper middle class. This is getting up to people who make like $5,000,000 a year or more, really the very richest people in the world. And there's not much of a migration increase, but admittedly there is a little bit. Overall millionaires have a migration rate of 2.4% a year, which is about almost half that of low income earners. Okay, so now in general, millionaires have low migration rates. Of those migrations that do happen, how much of that is tax induced migration? So for this we just want to see a pattern of millionaires systematically moving from high tax to low tax states. Just some moving doesn't count, that's the kind of thing we wanna see. So this is basically what we're gonna do here, just intuitively, we're looking at this map of the tax differences across states. So we just wanna ask how much does this map explain the actual patterns of millionaire migration on the ground? This is also the stage where you pull out a lot of complex regression analysis, But you know I've read a book about this and I sort of wanted to find out what's a simpler way to convey what the data see. So it turns out that a simple analysis gets you to the same answer, which is very nice. So what we're going to do here is just sort. We just take every millionaire that moved over this twelve year period, all cases of migration. We're going to sort them into three buckets essentially. If they move to a higher tax state, move to the same tax state, or move to a lower tax state. And here's what you get. So, first, this is people moving to a higher tax state. So, that would be like folks moving from New Hampshire to Vermont. These stories never get covered in the press. It just doesn't make sense to people. But they're quite common. A third of millionaires are moving to higher tax states. States that tax them at a higher rate than where they were previously living. Another 21% move between states that have essentially the same tax rate. Now, the third bucket is the case where again we see some evidence for millionaire tax migration. It's more common that people are moving to lower tax states than to higher tax states. So intuitively, it's more common to, I can't say for your state specifically, but in general, it's more common for millionaires to make a move like Vermont to New Hampshire than like New Hampshire to Vermont. Even though they both happen. So this difference here is really, if these two bars were the same height, that would sort of be a wash. We'd say, well there's nothing really going on with tax migration. This sort of what we see 47% minus 32%, it's about 15%. And what this means is about 15% of millionaire moves overall come with a net tax advantage. So is that a large number or a small number? Again, the baseline rate of millionaire migration is quite low 2.4%. So in any given year, 15% of those moves are tax migration. It's a small fraction of a small fraction, right? And then it gets a 15% to 2.4%, works out to a point 3%. A millionaires each year are moving for tax purposes.

[Sen. Ann Cummings (Chair)]: Doctor Young

[Dr. Christopher Young (Professor, Cornell University)]: It happens. Yes.

[Sen. Ann Cummings (Chair)]: This is all good, but the tax department, last time I asked, told me we had around a thousand millionaires and one So but the top 7% pay 50% of our revenue.

[Sen. Randy Brock (Member)]: Mhmm. They've

[Dr. Christopher Young (Professor, Cornell University)]: got they've they've because

[Sen. Thomas Chittenden (Vice Chair)]: I've got

[Dr. Christopher Young (Professor, Cornell University)]: the income.

[Sen. Ann Cummings (Chair)]: Number one or two leaving is going to have a bigger or is it going to have a bigger impact?

[Dr. Christopher Young (Professor, Cornell University)]: Well, okay. So I think in the easy way, there's more calculations to do to get to exactly the number that you want and I'll spare you the sort of, the arithmetic on all that. But basically, the way to intuitively understand this is that if a state raises their tax rates by a few points, typically you would expect maybe 1% of the millionaire population to move away, while the other over the long term, while the other 99% of the millionaire population is staying and paying the higher tax rate. So you know the way to think about this is you know if there's a business owner in the room think about that deal. You know, you can raise your, you can raise your tax rate, you can raise the prices you're charging customers that of course, we love our customers but raising the price by 10% and you lose 1% of your customers, that's a pretty good deal. That's gonna raise a lot of money. You do lose 1% of your customers, but the other 99% are paying more. So that's a business analogy to understanding what's happening here. And that's, I don't think how a state should set its tax rates, but if you are thinking about, you know, is this gonna work? The answer is, yeah, it's gonna raise a lot of revenue. Even with this small amount of tax migration. Just like companies raise their prices knowing that, you know, they will lose a few customers.

[Miles Trinidad (Institute on Taxation and Economic Policy)]: Is

[Dr. Christopher Young (Professor, Cornell University)]: that helpful?

[Sen. Ann Cummings (Chair)]: Yeah. Well, I guess of the of 15% of our thousand is a 150 millionaires that my calculators are doing this. Right?

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

[Sen. Ruth Hardy (Member)]: But it's not a 150 that move for tax purposes. All we only know. Only but only 1% do.

[Sen. Ann Cummings (Chair)]: Right, but if the vibration is 15% across the board.

[Dr. Christopher Young (Professor, Cornell University)]: So just to clarify, that 15% is the share of movers who move for tax purposes. So 85% of millionaires moving across state lines, it's taxes. Not LeBron James moved from Ohio to California. They paid higher taxes. It wasn't a tax it wasn't a tax move. You know? So mostly when people move, it's not for tax reasons. It's for a lot of personal reasons. 15%.

[Sen. Ann Cummings (Chair)]: Trouble in Florida like it does here. That

[Dr. Christopher Young (Professor, Cornell University)]: Yeah. Well, I'm I'm in Upstate New York, so I

[Sen. Ann Cummings (Chair)]: completely sympathize. They go to Florida.

[Dr. Christopher Young (Professor, Cornell University)]: Yeah. So of the people who move so I don't know the numbers for Vermont on the millionaire migration rate in Vermont, but on average in the country it's 2.4% a millionaires move in a given year. So you take that 1,000 and you multiply 2.4, you're getting 24 movers, 15% of whom, if just applying the national statistics, 15% of whom would have been moving for tax reasons. So 24, 15% of 24, it's maybe three.

[Sen. Thomas Chittenden (Vice Chair)]: If I may, Mr. We

[Sen. Ann Cummings (Chair)]: got another question.

[Sen. Thomas Chittenden (Vice Chair)]: So in that though, I'd be concerned about the same concern you raised previously about selection bias because you're applying a percentage from the whole population to a subgroup of millionaires as projecting on those same rationales but the millionaires I know live a different life than all of us at large. I don't know

[Sen. Randy Brock (Member)]: that many millionaires by the I way, think I know more. So,

[Sen. Thomas Chittenden (Vice Chair)]: just wonder can we really ascribe the same motivations on that subpopulation from the whole population if we have segregated them out based on one specific characteristic?

[Dr. Christopher Young (Professor, Cornell University)]: Yeah, so we're looking at movers. Mean, to answer your question, does Vermont follow the national pattern? And the answer is I don't know. Vermont is different state than any other states, and ideally, you know, you would do this study one state at a time. Going through and sort of asking, Oh, are some states different? And I had the time or resources to do that, and so I can't say for sure that Vermont would follow the national patterns. Overall, in general, we see is low levels of sensitivity to the tax rate. Taxes go up by a bit and generates usually a good amount of grumbling, but little migration. I can give you a bit more intuition about the reasons for that. I don't wanna cut off any questions.

[Sen. Ann Cummings (Chair)]: Well, no. I'm gonna cut the questions off because our net our next witness is in the waiting.

[Dr. Christopher Young (Professor, Cornell University)]: Out of time. Yeah.

[Sen. Ann Cummings (Chair)]: We can wait minutes. Well, the last

[Dr. Christopher Young (Professor, Cornell University)]: thought I'll leave you with is

[Sen. Ann Cummings (Chair)]: If first, then we'll hold questions.

[Dr. Christopher Young (Professor, Cornell University)]: The last thought I'll just leave you with is that most adult movers are recent college graduates. They're relatively young and they're not paying the high tax rates, they're not in the top tax brackets, but they're highly mobile. And that's the population that is sensitive and is movable and is gettable. Every state wants more rich people, but rich people are late career, quite embedded in where they live and where they built their careers. They've got homes and kids and as I say, business associates, friendship networks, lot of social capital in place and they're just not that mobile. If you so, you know, I'll just jump down to the very this is what I'm sort of saying. These are migration rates sort of by education levels. You know, high highly educated folks are mobile for a few years and but who's making all the money and who's paying those top tech brackets are folks down here who all have value. Doctor.

[Sen. Ann Cummings (Chair)]: Young, go back. You have the time you need.

[Sen. Ruth Hardy (Member)]: We wanna hear the whole presentation.

[Dr. Christopher Young (Professor, Cornell University)]: Oh, I'm sorry, understood that we were out of time. Sure, yeah. Well, I definitely don't want to skip over anything. We can do another way of thinking about Vermont in part of this analysis, just sort of thinking about places that live very close to a border with a lower tax. The classic example that I focused on in this study was Washington and Oregon. This is the border in the country that has the largest tax difference, or at least, again these tax rates change a little bit, but it's basically the highest tax difference border in the country running along the Columbia River here. And in fact, we've got a city, Portland, Oregon, that is sort of half on the Washington side and over here it's called Vancouver, Washington, but it's one metro area. So Oregon has a top tax rate of 13%. Washington State does not have a state income tax. So, you know, if you're one of these folks that's making a lot of money, you know, it's pretty easy to sort of hop across this border, drive across the bridge for a much lower tax system. As it happens, most of the millionaires along this border do live on the Oregon side. But this sort of motivates a broader example. Pretty much every state borders a state that has at least a slightly different tax system. Here we've got Vermont and New Hampshire. Also, the shading indicates how big the tax difference is. So lots of places the tax differences are not that big. Vermont, New Hampshire is one of the larger areas. California and Nevada, of course. So we wanted to look at all of these borders. So we're just looking at the borders, everything shaded in gray, we're just sort of like, let's not worry about that right now, let's just focus in on the areas where it should be the easiest to move for a different, just some of these places, it's literally across the street for a different tax rate. Move your house across the street, to move your job across the street, but that's the idea of places where it should be easy to move. So we've got lots of cases to look at to sixteen years of data. So now what we've done here is just put all of these border county pairs into places. This is the 10% of border counties that have the highest tax difference. The tax difference at the border, the effective rate, the percent of your income you would pay if you switched, it's about 6.5%. And over here, we've got states where the tax difference is negligible, right? So hopefully that's intuitive. So this is just showing you what would be the payoff to living on the other side of the border. Now, if folks are conscious of this tax difference or are motivated to keep their taxes low, this is what we'd be expecting to see, millionaires living on the low tax side of the border, that's why it's sort of inverted, these would be negative. This is not data, this is just showing the pattern that we're looking for. So, this is like the more motivation, the more incentive there is to live on the low tax side, this is how it should play out. What we see in practice is just not much of a pattern. If you looked at this for a long time, you might be able to convince yourself, maybe there is something sort of a little bit more negative on these higher tax differences. But you know, is not an impressive view. Again, this is what we are expecting to see and we do not really see much in the sort of technical model. It comes out as not statistically significant. You know that matches with what we saw from New Jersey again being an example like this. So just some basic sort of thoughts on this at this point. You know, look, millionaire tax flight does sometimes occur. But the magnitude is small. So if you think about this title of the book, Methamillionaire Tax Flights, you know basically it is not that it is zero, but the magnitudes of millionaires moving for tax purposes is today just too small to really matter much for state tax policy making. You know, much more is driven by, you know, if you just think about how many of these taxpayers do we have in our state, that's much more just a question of the underlying economic patterns that are happening in the state. Millionaire people growing their incomes into that millionaire bracket. People whose incomes are growing into the millionaire tax bracket is the story because these populations are generally geographically stable. So migration, it happens, but it's generally too small to really matter much for current tax policy. So if you wanted to ask, are we gonna get the revenues? The revenues are definitely gonna materialize. So, and again, I guess this is the part where I just sort of wanted to help give a little bit more intuition about this. Migration is a young person's game. It's not about rich people. It's about recent college graduates. Some of whom who might become rich, but let's see how this works. So, migration across the life course. Here on the x axis, we've got young adults going up into retirement age. And this is the migration rate. So, we are going to do is put people at different education levels on this line. This is from the census data. This is not tax data, and this isn't millionaires per se. We're sort of broadening out, I don't have education on millionaires and stuff. Just giving a broader view to try to understand what drives migration. So, looking at data from the census. So, these are folks who never completed high school. Their migration rates start out low when they're young and are low throughout their entire lives. People have some who graduated high school or have some college, have a little bit higher migration rates when they're young, but that levels off, drops down. Here's where we're starting to see real migration, college graduates, recent college graduates migrated about 12% a year. But again, it converges very quickly with people who didn't graduate high school. They'll get master's degree or higher, your MBAs, your doctors and lawyers, and so forth. This is where you get high migration rates. But by the time these folks are in their 40s, they all have the same low rate of migration. And so that's why I say migration is a young person's game, especially people with high human capital, but are young. The thing that's not a young person's game is making a lot of money. And so the median age of a top earner is about 49. The median age of an adult mover is 30. So what this means is that people are deciding where to live and where to set down roots about twenty years before they hit their peak earnings. And as we can see from this data, some people change that, but very few, they sort of grow roots, they don't generally move. So, think rich people are really the wrong focus. I was starting to say this, but every state wants more rich people, but they're just not very mobile. Future top income earners are highly mobile. And so I

[Sen. Scott Beck (Member)]: think

[Dr. Christopher Young (Professor, Cornell University)]: a smart strategy for states is focusing on attracting and retaining people at the beginning of their career, highly educated future professionals, beginning of their career. And what's driving them? It's not the top tax bracket because honestly, they're not paying and they've got much bigger priorities. They're starting a family, they need to buy a house, they're going have to worry about childcare for their kids, and all these things are going to come up a lot faster than the top tax rate. So, you know, quality of life and urban amenities, childcare, good school supports for young families are the things that I think states can really help make a difference for young folks starting out building their careers in the state. And some of them are going on to becoming some of the highest paid people in the state and some of the top taxpayers. But that part kicks in once they've sort of already phased out, left the sort of phase of life where they're thinking about moving to other places. So hopefully that helps give some intuition about what's driving

[Sen. Ann Cummings (Chair)]: this this general is helpful, thank you. I've got one question and we've been through the fifteen minutes that we asked our next witness for.

[Dr. Christopher Young (Professor, Cornell University)]: Oh no.

[Sen. Martine Larocque Gulick (Member)]: Thank you. I'll be clear. I read, let's see, Homelessness is a Housing Problem and the Ezra Klein book, Abundance, and both of those books talk about housing as just a super critical piece of migration. And my question is if you've dealt with housing, because we are concerned about young people not coming to our state and Franklin, New England, and all of the New England states have housing issues.

[Dr. Christopher Young (Professor, Cornell University)]: Yes, What else

[Sen. Ann Cummings (Chair)]: with do that at all?

[Dr. Christopher Young (Professor, Cornell University)]: Yeah, mean, I haven't done that analysis in the tax data, but I completely agree that it's a big driver of migration in general. Migration in general is driven by relatively low income folks, many of whom have good education, but aren't earning high salaries yet. Buying a home and making that step of settling down is a very costly equation these days. I did know, we looked at census data for New Jersey as larger part of that New Jersey case study. And what we saw in general is that people, you know, New Jersey does have high out migration. It's a very densely populated, it's the most densely populated state in the country. It does have high out migration and where those folks are going is generally to places that have much more affordable housing stock. So, just to speak to that point, I do think it's pretty clear that housing is a big part of what a lot of people are struggling with and what is generally driving migration patterns. Now, I would say that millionaires, of course, they can sort of afford this stuff, but I do think that housing is a much bigger priority. And if you were thinking about what's driving migration in Vermont, I would absolutely point to housing over taxes in a heartbeat.

[Sen. Ann Cummings (Chair)]: Thank you. Okay. Any other questions? We got one more thing.

[Sen. Thomas Chittenden (Vice Chair)]: Great presentation. I would be interested to dive deeper and to see if you segregated types of millionaires before to look for stronger patterns of relationships. Like there's the paper millionaire, somebody who has with their house and their four zero one k, more than a million dollars in asset versus like a high net worth individual or a super high net worth individual because there's like tiers or ultra high net worth individuals. Think you're and also income millionaires. But I I feel like you might find stronger relationships if you were to categorize the type of millionaire in a future analysis.

[Dr. Christopher Young (Professor, Cornell University)]: Sure, we absolutely have done that. I don't have this slide for you, but I could send a couple slides along more like the chapter where we do that. Not by wealth because we don't have wealth in the tax returns, there isn't a wealth tax. But we do have, how long super millionaires, 10,000,000 or people who make $10,000,000 a year, people who make million dollars a year, year in, year out, capital gains millionaires and so forth. And they're all in a sort of similar category. There isn't anyone that jumped out as being highly mobile in our analysis.

[Sen. Ann Cummings (Chair)]: Thanks. Okay, thank you. Thank you very much.

[Sen. Randy Brock (Member)]: Thank you.

[Sen. Ann Cummings (Chair)]: I

[Sen. Ruth Hardy (Member)]: just wanted to make sure you send along your slides, because you went through them quickly, it would be helpful to review them.

[Dr. Christopher Young (Professor, Cornell University)]: Sure, absolutely. Thank you. And I'll add in that slide about the different types of millionaires as well. That

[Sen. Ann Cummings (Chair)]: would be very helpful. Thank you.

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

[Dr. Christopher Young (Professor, Cornell University)]: You're welcome. Thank you.

[Sen. Ann Cummings (Chair)]: Thank you. This has been good. Okay, let's go on to Okay, this is further testimony on February, which is the wealth proceeds tax. Have Miles Trinidad. And Miles, welcome, thank you for being patient. Our last witness had a lot more data and information than I think we were anticipating. So, we just ask you, welcome to the Senate Finance Committee, and ask you to just identify yourself for the record, and then the floor is yours. Yeah.

[Miles Trinidad (Institute on Taxation and Economic Policy)]: Thanks for having me. My name is Miles Trinidad, and I'm a state analyst at the Institute of Taxation and Economic Policy. So I have some slides. I'm gonna share my screen really quickly. Okay. You should be able to see it now.

[Sen. Ann Cummings (Chair)]: We see it, Jess.

[Christopher Mattos (Committee Clerk)]: You want. Lovely.

[Miles Trinidad (Institute on Taxation and Economic Policy)]: Alright. Is it still showing up correctly over there?

[Sen. Ann Cummings (Chair)]: Yep. We could see very well. Thank you.

[Miles Trinidad (Institute on Taxation and Economic Policy)]: Alright. Great. Alright. So let's get started. So this is on a a wealth proceeds tax. So my colleagues, Sarah Austin and Carl Davis, wrote a big report on this policy explaining the reasoning behind this tax, the types of income subject to it, and a 50 state analysis of the revenue potential of this tax. And much of this that I'm presenting today can be found in this report. And so today, I'm gonna be going through the history of the tax, its potential to be administered simply at the state level, and the reasoning behind levying this tax that focuses on proceeds derived from owning wealth. And at any time during this presentation, feel free to interrupt me with any questions since I may not be able see you, but there will also be an opportunity to ask questions at the end as well. So let's get started. So a bit of the background of this tax. So the origins of this started at the federal level with the passage of the Affordable Care Act in 2010. The bill included a major expansion in federal funding for health care, and that expansion was funded in parts with an additional payroll tax on wage income and also a sister tax called the net investment income tax or NIT. And those taxes that tax is passive income not earned through work, and that's the focus of this bill today. Introducing the NIT and the ACA ensure that workers will then have to shoulder the cost of health care expansion on their own and that very wealthy investors would also contribute. So getting into the nitty gritty, unintended, the net is a federal tax levied at 3.8% on passive capital gains, dividends, interest, business income, and certain annuities. And to be clear that the net is focused only on passive income and excludes income of those types related to business or trade or, like, wage income. And on the federal level, the law applies a $200,000 threshold for single filers and $250,000 for joint filers. And then filers income is below that threshold. They don't owe any nits, period, regardless if their income is from wealth or work. And for those with the income above it, only the portion only the portion of passive income that exceeds the threshold is taxable under the NID. And so the reason why I'm telling you all of this is because this federal policy provides a valuable framework for states looking to tax passive income of high income households. And in 2022, just 4% of Vermont households owed this federal tax on their passive income. And the federal net is built around an IRS audited definition of passive income that states can conform to in order to create their own tax on the proceeds from owning wealth and to ensure that this tax is well targeted to those that best able to pay the tax. And a great example of this is Minnesota, which passed this state level tax in 2023. At the time, Minnesota lawmakers were looking for a way to fund free school meals and ultimately chose this tax on passive income as one major part of that package. And rather than opening up a big messy debate on how to define passive income, lawmakers chose to simply piggyback off the net. It is generally quite sensible. Lawmakers then made some adjustments to the federal structure, like increasing the threshold to $1,000,000 and exempting a certain agricultural property, and then they applied a 1% tax rate. And this year, we expect their tax to bring in about $68,000,000 in revenue. And another lesson from Minnesota on how simple this tax is to administer is because they chose to conform to the federal NITs. And even with some of the departures from the federal structure, their state's schedule NIT is still on a single page of worksheets. And the fact that the IRS already has issued guidance on that federal NITs and already looks at audits and flags noncompliant returns. All of this helps to make this policy simple to administer and easy to comply with. And so now looking a little bit more closely at s two eighty two, this which would create a saleable wealth proceeds tax in Vermont that piggybacks off the net. So this would create a 4% wealth tax on investments on investment income. Sorry. And like the federal net, the wealth proceeds tax applies to individuals, estates, and and trusts with investment income over the federal threshold amounts. In addition to the passive income that is taxed by the federal net, this bill incorporates a few modifications that I'll describe in a moment, and the bill also guards against using trusts to avoid this tax, which I'll we'll also touch on later. And this bill assists a tax on certain investment income similar to the same thresholds in the federal bill or the federal law, sorry, of $200,000 for single households or $2.50 for joints, and then also 16,000 for certain trusts and estates. So an example of who would be subject to this NITs, imagine how each of these bars might represent the income of various tax filers broken up by wage in blue and passive income in green. On the left, you can see three examples of filers who would not know who would not owe any tax, such as people who only have passive income or a mix of those who would have wage and salary incomes. So about so this group on the left comprised of about only 96% of all Vermonters, so those people would not be subject to this bill. On the right, you can see two examples of filers, one with all investment income and the other with a highest salary supplemented by some investment income. Both of these would pay tax only on the portion of investment income that exceeds the threshold amount, so similar to, like, a marginal tax bracket. And about 4% of Vermonters would fall into this category. As far as what counts for investment income or both proceeds, this bill adopts the federal definition of net investment income used by the Nets, but would also make some modifications. So the federal NIT's taxes capital gains or profits from selling property, stocks, dividends, which are payouts of corporate profits to shareholders, a variety of income from business ownership like rents or royalty income or business profits, as well as trust income, interest, and nonqualified annuities. And then this bill would make some modifications starting with excluding federal bond interest, which states legally cannot tax. And then the bill also adds interest from out of state bonds and capital gains to the extent that they're excluded from the nets, including those from business sales, opportunity zones, and qualified business stock exclusions. All of these capital gains are already federally tax preferred, but the capital gains from opportunity zones and qualified small business stock are often completely tax free at the state and the federal level. In general, both proceeds are very lightly taxed income at the federal level. Long term capital gains, qualified dividends, we estimate to make up about 80% of the base of this tax, and they face a federal tax rate that tops out at 23.8% between the federal income tax and net investment income tax rate. Compared to that, the top federal rates on wages are 70% higher at 40.8% when considering the income tax and the net sister payroll tax, the additional Medicare tax. So in total, about 83% of this tax base in this bill enjoys preferential federal income tax treatment. In addition, all the income tax by this proposal is excluded from state unemployment insurance and federal FICA and payroll taxes. So this table kinda goes into further detail on the types of income at issue here and our federal tax treatment. All you can see is treated very differently than you would from someone who maybe would just receive a w two. So earlier I flagged something I wanna touch on regarding trusts. So trusts hold wealth that is often invested. And when these investments yield profits, income tax is owed only on the profits generated in a given tax year, only if the trust doesn't pay out the profits to its beneficiaries. So something this committee should know is that the some a practice tax punishment to avoid state income taxes is called ING trusts, also known as incomplete nongrantor trusts, which shift income out of state. This will includes language modeled after New York to nullify the income shifting effects of these trusts and brings the income from these trusts back under the rightful jurisdiction of the Vermont tax code. This is important to include in the wealth proceeds tax because passive income is easy to move into trusts. And it's also worth having on your radar more generally because there's reason to believe to be believed that aggressive use of ING trusts may already be under kind of Vermont's state personal income tax as well. And then finally, on the topic of estates, some larger estates may take years to settle, and during this time, assets within the estate can generate income. And it's this income that is subject to the income tax and potentially taxable under above proceeds tax. And this is an entirely separate issue from an estate tax which is owed on the wealth of an estate. So so far, I've been talking about what the wealth proceeds tax, but I also wanna make very clear what this isn't. There are common points of confusion I wanna clear up. So first, you know, we have capital gains from selling a prime primary residence. This is not included. So back Let up. So we have capital gains from selling any of primary residence, which is not included in the nets for capital gains up to $250,000 for single filers and 500,000 for married. And an important distinction is that these numbers are related to the net profit of a home and not the full sale price. And then while wealth proceeds do not include profits from passive business investments, they do not include business profits from a business the filer is both materially participating in. So the test for this is generally a requirements with a minimal number of working hours as US one hundred hours over the tax year, and most business income is not passive and is therefore exempt from this tax. And then finally, traditional retirement income is fully exempt from this tax. So that's like social security, pensions, four zero one k's, four zero three b's, qualified annuities. So the bill does not tax retirement income. And then one thing we did want to flag is a technical note to this bill. So this bill references taxable income, but we would suggest changing it to federal modified adjusted adjusted gross income. That's the definition used with the federal net thresholds. So we generally recommends using the same yardstick to make it kind of simple and easy to kinda translate this tax from the federal level to the state level. So and then the threshold definition should also have these modifications to ensure a kind of like apples to apples comparison when applying this threshold. And then finally, the estimate from the wealth proceeds tax in this bill, we estimate to raise about $75,000,000 annually for Vermont. This would come at a good time as the state navigates, you know, federal funding cuts for hunger and health care programs. And in addition, the tax is also well designed to target income that is highly tax referred at the federal level and would avoid further taxing families struggling to make ends meet. That's the end of my slides, so thank you again for the opportunity to present to you all, and I welcome any questions you may have.

[Sen. Ann Cummings (Chair)]: Okay, I've got one, Senator Chittenden.

[Sen. Thomas Chittenden (Vice Chair)]: Could you go back to slide 10? You jumped over this, and I'm really trying to understand what these columns represent and if they're Vermont context specific. You go yeah. Through So walk me through what each column represents to you and what I should be taking from this outlay.

[Miles Trinidad (Institute on Taxation and Economic Policy)]: Yes. So on this first column here is the share of like the wealth proceeds tax base. So this is, like, you know, the proportion of how much income or how much of the the base is being taxed whether it comprises of the overall taxable income from all of these categories. So over here, long term gains is about 39%, and then this column to the right is if it's preference under individual income tax. So as we mentioned before, like, the top tax rates for an individual income tax is 40%, but because it's, a long term capital gains is taxed at a some a lower rate of about, you know, an effective 23.8% tax rate. So these ones that have the green column, these are generally taxed lower than someone who may be, you know, working a nine to five. And then on this column over here is it it's exempt from the federal nets. So these ones, you know, I think it's a kind of self explanatory. And then this one is over here is the exempt from FICA and Social Security payroll taxes. So all of these wouldn't be subject to, you know but somebody who's working a nine to five would pay on their their wages towards Social Security or Medicaid.

[Sen. Thomas Chittenden (Vice Chair)]: I just have to clarify. So is this Vermont specific and how you're breaking apart what the anticipated revenues might be from s two eighty two? That's what this this 39.1%, that 39.1 of the Yeah.

[Miles Trinidad (Institute on Taxation and Economic Policy)]: This is the non specific.

[Sen. Thomas Chittenden (Vice Chair)]: The anticipated revenue base, I don't see it specifically in the slides, was it 68,000,000?

[Miles Trinidad (Institute on Taxation and Economic Policy)]: 75,000,000.

[Sen. Thomas Chittenden (Vice Chair)]: So you're saying that about 39.1% of that 79,000,000 would come from taxing long term gains that are currently subject to the federal net income investment income tax.

[Miles Trinidad (Institute on Taxation and Economic Policy)]: Yes, that's exactly correct. That's very helpful,

[Sen. Thomas Chittenden (Vice Chair)]: thank you, now I understand.

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

[Sen. Ann Cummings (Chair)]: I think

[Sen. Thomas Chittenden (Vice Chair)]: So I'm concerned about taxing capital gains.

[Sen. Ann Cummings (Chair)]: I think the closer we could model this on the federal, thus the easier it would be for the tax department and tax filers would be probably helpful. Is that pretty much what Minnesota did? I mean, if we could get one page per filer, that would cut down a lot of the opposition.

[Miles Trinidad (Institute on Taxation and Economic Policy)]: Yeah. That's exactly what Minnesota did. There's only a few alterations. They just changed the threshold for who would be subject to the tax, and I think they excluded agricultural property. So just like, you know, a simple subtraction from what was included on the federal level.

[Sen. Ann Cummings (Chair)]: We do have yeah. One of the things was this bill didn't comply with Vermont's capital gains on business and farm property sales. It didn't. It it it was different from us.

[Sen. Ruth Hardy (Member)]: It was different.

[Sen. Ann Cummings (Chair)]: We we have an exemption in this one. The pro Phil didn't recognize the come on. I I think agricultural sales would probably have to be figured in. Okay. So that is helpful. Any other questions? Chittenden again.

[Sen. Thomas Chittenden (Vice Chair)]: Me again. So those first two long term gains subject, long term gains exempt. In your mind, is there clear discriminators on those types of gains within there versus their gains on a stock position versus a physical land asset versus a business interest that's domiciled in the great state of Vermont? Is there clear delineations of those gains that are discernible through tax policy?

[Miles Trinidad (Institute on Taxation and Economic Policy)]: That's a good question. I'm not quite sure if I could answer that. I can go follow-up with my colleagues who are who drafted this report and did the state by state analysis and see if I can get a little bit more detail on how that's differentiated.

[Sen. Thomas Chittenden (Vice Chair)]: Any time you could spare would be appreciated.

[Sen. Randy Brock (Member)]: Okay. I

[Sen. Ruth Hardy (Member)]: mean, I think it's the third column over. There are just the two green yeses there. Those are the additional additional things that are in S282 that are not in federal bill. Is that correct? Am I understanding that correctly?

[Miles Trinidad (Institute on Taxation and Economic Policy)]: Yes, I think that's correct.

[Sen. Ruth Hardy (Member)]: Okay. So if we were to do what Minnesota did and just model it exactly off the federal program, we would not have those additional long term gains, we would not have the interest on out of state bonds, you know, if we were to do what Minnesota did and mirror the federal one.

[Sen. Thomas Chittenden (Vice Chair)]: At the million dollar trigger?

[Sen. Ruth Hardy (Member)]: Well, I don't know what the trigger is. We would have to

[Sen. Ann Cummings (Chair)]: Yeah, and talk the about concerning one is probably the 23%. That would decrease the revenue. Yes, 20 Yes, three out of state bonds is gonna be decimal dust, but 23 the long term gains exempt from federal. So we'd have to find out what that is and how it complies with our long term gains. And I think part of the testimony we missed yesterday was that, I think, you know, they were sitting here waiting for us yesterday. So yeah. Nope. That was another one. So we will get them in if we're gonna move this forward. Any questions for this witness at this point? Thank you. Okay. Thank you. This is Okay. Committee. We're planning our last week. And yeah. I'd like to have a short if if this bill let me see what I'm planning to go forward with. I'm planning to get out the water portable water. The water hookup connection, we're waiting for numbers from A and R, and we'll get those. Two twenty, I'm gonna put on got the votes for that one.

[Sen. Thomas Chittenden (Vice Chair)]: On that, Madam Chair?

[Sen. Ann Cummings (Chair)]: Yeah.

[Sen. Thomas Chittenden (Vice Chair)]: Can we broaden that discussion to look at excess spending?

[Sen. Ann Cummings (Chair)]: Yes. We back? You it's on for discussion. Okay. No. Motor Vehicles is the week after. We don't have to do them.

[Sen. Thomas Chittenden (Vice Chair)]: On the s 02:20 before you

[Sen. Ann Cummings (Chair)]: go lunch Well, that's where I I wanna I'm gonna get back to. 02:11. I just wanna know Mhmm. Yes. What there isn't enough interest in to make it even worth taking up the agenda. I think the two I've got on there, one is S-one 161, that's the scholarships. I think we need to talk about that. I don't know. I'm not sure where the support is on that one. There is a proposal in the house which I've been told is a flat note, but there will be a vehicle coming. It would change our mind. $2.20, there isn't a vehicle, but it is a tax, so we can't reach agreement on that. But this one is the one I'm interested in. Is there a possibility of our getting out some variation of this taxing on investments capital gains. I like to make it as similar to the federals just so you've got Minnesota's one page. I think we might have to look we'll have to do some more work on that capital gains exemption for agriculture and see what Minnesota did. And we've got agriculture business, but I'm just wondering, is this something that's gonna go anywhere? Is it worth working on? What, like, if you did that, what problem would we be solving? We'd be raising some money for school construction. The problem is we have no money for school construction.

[Sen. Ruth Hardy (Member)]: That's what the bill does. Right?

[Sen. Ann Cummings (Chair)]: That's what the bill does. Bill the revenue. Yes. And we we could do it that way or we could do it We could just raise revenue, and I know when we had the joint hearing on the federal tax federal revenue impacts with the new tax changes, the analysis was that it would be the corporate income tax would be about $1,000,000 and it would be like decimal dust. Well, I guess further analysis, it's looking like it's a lot more than decimal dust. And the governor's budget, it's more like 25,000,000. That was the last I think I heard. Anyway, the budget the budget and the revenue estimates were different on this one. So the appropriations committee are doing some cleanup and they are the house is going to be sending us, I think, a miscellaneous tax, a decoupling for

[Sen. Ruth Hardy (Member)]: For corporate. For corporate, yeah,

[Sen. Ann Cummings (Chair)]: so that we don't lose $25,000,000. Corporate is kind of erratic anyway, but there was some concern that usually most corporations seem to let overpayments, they make quarterly payments that they don't owe it, rather get a rebate, they'll just let it rise to just kind of cover their tax for next year, and the tax department said maybe at the e board, they were seeing a lot more corporations just taking their returns and not letting it carry over and they're saying now that they've seen what the reductions are gonna be in corporate tax, they understand why maybe they're thinking they aren't going to owe any tax next year. So that's moving pieces. The House rewrote the corporate tax code two years, three years ago. It is a revenue bill, so they are starting it there, but that one will be coming. But that's a whole but this one would do the same would tax these assets the same in Vermont as they do at the federal level. It starts lower. It was passed to fund the Affordable Care Act, was the testimony, and I'd like to start it higher than 200,000, but if that's an income, that's where you have to start. But it isn't that much per taxpayer for most taxpayers, and it would get us some more construction or maybe some other money that we need to fill other holes. I'm sure we can send it out of here to school construction, but it will have a long journey, and if there's revenue attached to it, I'm sure the appropriations committee will look at it. But that's what I'm thinking, you know, is and if and if you're no or what further information does people need. I'm not gonna talk about any I haven't got a bill to get any changes in the taxing whatever adjusting rates that will work on because miscellaneous tax is coming. But this is one that could go now. It could get attached to miscellaneous tax too, but I'm I'm just we have time. So We

[Sen. Ruth Hardy (Member)]: I would like, I think, obviously, to see the analysis with if we do match it up exactly with the feds, how what would it look like? If we do something like Minnesota did with the ag

[Sen. Ann Cummings (Chair)]: property, what would it look like? But we have to make it compliant to our

[Sen. Ruth Hardy (Member)]: capital gains. Right, so what would it look like? And then if we were to move around the income, I actually think that moving it won't make that much difference because it's not about it's about how many how many people make this kind of passive income and not that many people do.

[Sen. Ann Cummings (Chair)]: Do. No. We have that chart. Yeah. Yeah. So The bulk was at the very top. Top. Exactly. It's not

[Sen. Ruth Hardy (Member)]: that many people. So, I mean, and in terms of what we could do with the revenue, depending on how all of this shakes out and whatever, is we could put some of it to to school construction to start building that fund. And if we wanted to do, again, do what Minnesota did, we could put $18,000,000

[Sen. Ann Cummings (Chair)]: of it towards school lunches and that would lower property taxes. Yes, we could, couldn't we? And that would take that off the table. Yep. Okay. I'm looking at this side of Should

[Sen. Martine Larocque Gulick (Member)]: we walk through the bill again when we get back?

[Sen. Ann Cummings (Chair)]: Oh, yeah. Okay. We're gonna walk through it. I'm just well, if there's enough interest, we'll walk through it.

[Sen. Scott Beck (Member)]: If

[Sen. Ann Cummings (Chair)]: nobody's I'm interested in learning more about Okay. The what The how these changes would look like. What I'm looking for. Yes. I think it would be intriguing. So we will ask Joint Fiscal if they can model for us. Come on.

[Sen. Ruth Hardy (Member)]: Aren't you curious to learn more

[Sen. Ann Cummings (Chair)]: about You know what I think? I've learned about think I've already asked them to model it. Yeah. If it adjusted the income up and if it that would be up for inflation. It's good. $20.13 dollars now. And if it were brought into compliance with our agriculture and business capital gains exemptions and see what we can get.

[Sen. Thomas Chittenden (Vice Chair)]: So those are the comments I'd make, just looking for others to speak, that if this moves forward I would have serious concerns and pause if we don't segregate out those very frequent one time millionaires in Vermont because I don't really think they are millionaires. They're cashing out at the end of their life cycle, so that's why the capital gains is an important piece to me. But if we look at the passive incomes, I'm happy to explore how that would model out and how it could be consistent, but that's for individuals that get those dollars at higher amounts off of passive income for years forward. So any way to segregate those things, I'm interested in knowing more, but that will drastically reduce the 78,000,000 from those figures. I mean, then we're talking already down to, like, 30,000,000 or less, but maybe that'll pay more.

[Sen. Martine Larocque Gulick (Member)]: But I don't think it's

[Sen. Ann Cummings (Chair)]: the same kind. Yeah. Well, I think that's that's what kind. Yeah.

[Sen. Thomas Chittenden (Vice Chair)]: That's what I need.

[Sen. Ann Cummings (Chair)]: Yeah. Yeah. I I think it was joint fist But we walked through it a long time ago.

[Sen. Ruth Hardy (Member)]: And I I remember there's a distinction between

[Sen. Ann Cummings (Chair)]: So so many actions would be Let's set up one Okay. Do capital gaze at Kirby. This might be the week you go later than 04:00. Not the next. Everybody has some puzzled expression today.

[Sen. Scott Beck (Member)]: Well, I'm just thinking of this in the context of and that's why I asked you the question. This is about a way to spend even more money, that's where I started to get a little lost.

[Sen. Ann Cummings (Chair)]: I well, the the proposal is to find some money for school construction because we aren't gonna be able to consolidate schools if we don't build a classroom here or there or patch a leaky roof. That's the original proposal. The other one is, well, if we could replace the money that we're spending out of the property tax to pay for school lunches, which is what they did in Minnesota. Yeah. That's all the kids hugging the governor. That's not a good spend. That is not in this bill. No, this is a revenue raising bill.

[Sen. Scott Beck (Member)]: I look at 2,500,000,000.0 for 82,000 kids and it seems to me like there's room in there for school construction, but we're not spending it on school construction right now.

[Sen. Ann Cummings (Chair)]: We we do not have an actual income source for school construction

[Sen. Martine Larocque Gulick (Member)]: It seems to you. Is that

[Sen. Scott Beck (Member)]: Yeah. I think that there's 2 it's 2,500,000,000.0. There's room there's capacity there for school construction. Wait. It's not

[Sen. Ann Cummings (Chair)]: being spent on That's the the total cost. I understand.

[Sen. Martine Larocque Gulick (Member)]: But I but that's one of the biggest things the government does is education. So yes, it is a big, it's a

[Sen. Scott Beck (Member)]: big item. So can you expand on your 102,500,000,000.0 for 82,000. It's too much. I think the capacity is within there to pay for school construction but that means we are ready.

[Sen. Martine Larocque Gulick (Member)]: Okay, but you didn't actually expand.

[Sen. Ann Cummings (Chair)]: No, I think it's getting down to, you repeat it, they're spending a lot of money

[Sen. Martine Larocque Gulick (Member)]: per student. I think we all understand that and we all understand there's a need for reform. Just am trying to figure out where that money's going to come from.

[Sen. Ann Cummings (Chair)]: Is When we figure out how we're going to reform

[Sen. Scott Beck (Member)]: them. It's 80% personnel based. So just get rid of personnel. We're staff pretty high rate.

[Sen. Martine Larocque Gulick (Member)]: We have the highest per well, can't compare apples to apples. There are other states that do not put a lot of the things that we put into our unquote, per pupil spending, so it's apples to oranges. Is that a way to get rid of

[Sen. Randy Brock (Member)]: school Well, you guys can right size that so that we're doing the apples to apples comparison, which is is is absolutely

[Sen. Martine Larocque Gulick (Member)]: But let's do it right. Let's not just like Okay.

[Sen. Ann Cummings (Chair)]: We're getting in to a discussion of a bill that isn't here. $2.82. Randy, any possibility? Any more information?

[Sen. Randy Brock (Member)]: On on what?

[Sen. Ann Cummings (Chair)]: On the on the capital gains passive. Isn't it? Which

[Sen. Martine Larocque Gulick (Member)]: is an unfortunate name, by the way. What? And I I

[Sen. Ann Cummings (Chair)]: can't be getting yet.

[Sen. Martine Larocque Gulick (Member)]: Would you like to pause at something? Because I actually do think, Senator Beck, that's a good question, which is what problem we're trying to solve. And there's definitely the question of school construction and education and all that. There's also, we have to understand the environment we're in where we are, money that we've had is being, is removed now in terms of Medicaid, enhanced subsidies, in terms of what, but, you know, we can can flush all of that out if we want to. But this is and the and the tax cuts for the super wealthy, right? They're they're already super wealthy and now they're getting more in the form of tax cuts to the tune of what? Almost $60,000 a year. So this is an opportunity to I use the word clawback for lack of a better term, but to get some of the money that we've lost and are losing back. Okay. I'm not like we're just, like, adding spending. It's we're trying to hold on.

[Sen. Ann Cummings (Chair)]: I wanna try to I I in the new form letter out that is doing Excuse me.

[Sen. Randy Brock (Member)]: We're not

[Sen. Ann Cummings (Chair)]: And then 57,000 number

[Christopher Mattos (Committee Clerk)]: because we don't lose any Yes, are. We are. Not to the extent that they're saving 60,000 at the federal level for

[Sen. Randy Brock (Member)]: the fact there.

[Sen. Ann Cummings (Chair)]: Well when your tax bill, your health insurance goes from 4,000 to $45,000 in your debt to pay the loss.

[Sen. Thomas Chittenden (Vice Chair)]: Franklin, no, no, I was

[Christopher Mattos (Committee Clerk)]: just gonna say that you're trying to claw back the federal tax. They're saving on their federal taxes. That's what you're saying. You don't claw back. So it's gonna put Vermont at a disadvantage if other states obviously don't try to claw back. That puts us on it. Well Because it's a federal law.

[Sen. Ruth Hardy (Member)]: But but I think the point that senator, Cummings was making was that one of the ways that we we have seen an increase because of the federal tax cuts that they they cut tax they cut and then well, is the the increase in health care costs that we're seeing, like, enormous increases in health care costs because of the lack of the federal subsidies. So that is increasing Vermonters health care costs substantially.

[Christopher Mattos (Committee Clerk)]: So that's everybody. So

[Sen. Ruth Hardy (Member)]: if we if we are able to, you know, raise some revenue through the tax capacity that has been freed up because the federal government greatly reduced taxes on wealthy I know, but that increased that that freed up tax capacity. So, you know, taking advantage of the freed up tax capacity to try to fill a hole that the federal government created, I think, is a valid thing to be to be considering.

[Sen. Ann Cummings (Chair)]: That's what I'm not here on is where that 50 Because seven

[Christopher Mattos (Committee Clerk)]: every other state does not try to claw back that money. Vermont is further behind.

[Sen. Martine Larocque Gulick (Member)]: Well, heard from Patrick Chittenden that many states are, as a matter of fact, trying to claw that money back. Okay, my first question

[Sen. Ann Cummings (Chair)]: is where that $57,000 number is coming from. I'm getting some What what's the what's the letters that say it's obscene, but the federal government has just given millionaires a $57,000 tax decrease. I'm looking at

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

[Sen. Ann Cummings (Chair)]: Decrease. I'm looking at the changes in HR1. Corporations were the big winners, alright? There is, that I'm seeing, there is no actual rate reduction. What they did is they extended the rate. Made permanent the rate reduction that they did in 2017. We did make adjustments for that rate reduction in '17. Mhmm. So it's not that they're getting $57,000 more sent back to them this year. They're just paying the same taxes they have since So '20 the mental they've still got a lot more money than the average Vermacher, but it's not like, oh, they just gave this to me, so I'm gonna give it to you. They're pretty used to it just like we're all pretty used to getting, you know, all the raise automatic deductions.

[Sen. Ruth Hardy (Member)]: Well, think your point before though, Matt Chair, is a good one, is that people were used to getting the subsidies and they're not getting the benefits. They are not. And it is a decrease in people's expendable income at who are relying on this. This is

[Sen. Ann Cummings (Chair)]: turning to school construction right now. Right, for sure. I mean we can, yeah, and we can discuss other things.

[Sen. Thomas Chittenden (Vice Chair)]: So on that, I want to reframe some of this and what I think we do need to do, because I think it was bad policy that many of us were in the building when we did this, we packed on universal meals without paying for it. We, as a legislature, required this of at the tune of originally $30,000,000, and we just forced all the communities out there to have to pay for it. We're not gonna repeal it. It seems like this governor has gone to the point and seems like we're all in agreement that we won't be eating kids universally, that I think it's the right thing. That's where I'm open to new revenues. I agree. We have to look at our spending. We have reduced students. We gotta find ways to gracefully do this in ways that don't decimate our local public schools and also provide good education. But I do think that we need to correct the wrong that we've been feeling the last three years, which is we put an unfunded mandate on the Ed Fund. And so that's where I do support finding sensible ways. And that's where I really like what you're talking about before, Madam chair. I I don't if we can pull this into it, but looking at our existing tax rates, really recalibrating them in a way that is sensible and aligned with the new federal

[Sen. Ann Cummings (Chair)]: We are not going to be able to do that in the next week. My goal is

[Sen. Scott Beck (Member)]: How much is the numbers in the

[Sen. Ann Cummings (Chair)]: end? Is trying to get

[Christopher Mattos (Committee Clerk)]: 2.5.

[Sen. Ann Cummings (Chair)]: Is to put that on miscellaneous tax that I'm looking at. That's why I suggested To tag people to attract those folks coming out of medical school.

[Sen. Thomas Chittenden (Vice Chair)]: The other thing I wanna say though, and so that's what I do support new revenues because I I think that's rational and it it corrects what I think was was an oversight on our part. I think I want to be absolutely realistic, and I want to say the quiet part out loud is, I mean, if we put forward new revenues, I don't feel like this governor is gonna sign it, so we're gonna play as some sort of standoff

[Sen. Ann Cummings (Chair)]: Well, if we do

[Sen. Thomas Chittenden (Vice Chair)]: if that's the game we're play and we're gonna sound that path, just recognizing that dynamic, we have to focus through to stand on our principles, recognizing it's not ultimately gonna be passed into law. I just wanna focus on the feasible, and I'm wondering if there's a feasible path

[Sen. Scott Beck (Member)]: That's part

[Sen. Randy Brock (Member)]: of universe. Also has to be focused on the expenses. When when you look at Vermont and you look at the cost of education, in particular, the number of people who are not teachers in the classrooms in Vermont compared to the rest of the universe, we're hot. We're we're off the edge. Yeah. One of the things that we do need to do ultimately, we probably won't do it in this session, but we need to plan for doing it, is getting expenses where they belong. Because one of the reasons our education costs are so high is because we have stuff in it that's not in the education budgets of other states, and that itself may throw us off

[Sen. Ann Cummings (Chair)]: to people.

[Sen. Ruth Hardy (Member)]: Well, could move some of those expenses off the Ed Fund and pay for them with this this new revenue. That's another thing. We could move some of the mental health and social services costs off the Medi Fund.

[Sen. Randy Brock (Member)]: Can see, but I think we should certainly look at it.

[Sen. Ruth Hardy (Member)]: We could pay for that with this new revenue, that would reduce property taxes. And Alright. We will be

[Sen. Randy Brock (Member)]: And we also need some additional consulting advice

[Sen. Martine Larocque Gulick (Member)]: But I think

[Sen. Randy Brock (Member)]: the next week. And by that I mean, every time we go and get consultants from the Public Assets Institute, we're recommended another. And when you look at the evaluation of consultants, they're always left or far left as the people we talk with today. We need a balance of that to say, Why are we getting the thing?

[Christopher Mattos (Committee Clerk)]: Now, I don't know about I

[Sen. Randy Brock (Member)]: have never met a person who lives in New Hampshire who moved to Vermont.

[Sen. Martine Larocque Gulick (Member)]: I've never met one. Why

[Sen. Ann Cummings (Chair)]: did

[Christopher Mattos (Committee Clerk)]: they get there.

[Sen. Ann Cummings (Chair)]: Randy get us a name.

[Sen. Randy Brock (Member)]: Alright. I will I will work on that as soon we can get somebody in here if we know what day we want them in it.

[Sen. Ann Cummings (Chair)]: But I'm thinking this could turn out. But We're raise we're raising some revenue. I have. K? I've been saying We bring things in line.

[Sen. Randy Brock (Member)]: Protect for

[Sen. Ann Cummings (Chair)]: We need to have

[Sen. Randy Brock (Member)]: One step. One step.

[Sen. Ann Cummings (Chair)]: Yeah. We can Put it in the education fund to buy pay for Yeah. School lunches, and we could we could actually yeah. What I'm I'm struggling with, if we could put it into end, we could bring down property taxes, and we keep it from being stolen for transportation. What's going through my mind is we raised hell because the house raised taxes, put them on a specific program, they never went, the revenue never went through the appropriations process. That will happen here. I think we can What was that? That was Yeah, there were three bills that we just told the committees of jurisdiction, don't even think about it because we're not raising How about those taxes. But I think that could we could have that discussion because we would be raising groups that are arguably people with more wealth than others, probably than the average, to bring down the property tax cost or to take an unfunded mandate out of there. And we might even find enough money to give a cost of living increase to those designated agencies, which are supposed to be dealing with the mental health issues.

[Sen. Martine Larocque Gulick (Member)]: You go first. I just wanna say, I think we all, although we end up sort of feeling like we're on different sides of the fence, I actually think we all have very similar goals. And this, I think it's really important that we don't see this as a zero sum game. We can cut costs and maybe we can increase some revenue. We can do both and we can solve some problems. This isn't an eitheror. And I think many of us want education reform, full stop. We want to do it right. There's not a heck of a lot in Act 73 that is going to radically lower our property taxes, guys. That is the truth. And I even think I've heard you say that before, senator Beck.

[Sen. Scott Beck (Member)]: No. I think you did.

[Sen. Ann Cummings (Chair)]: My ability You guys did

[Sen. Martine Larocque Gulick (Member)]: this stuff in our but, anyway so if if there is, show me where there is radical decreases in spending in Act 73.

[Sen. Ann Cummings (Chair)]: Okay. We're getting off the top of territory. I'd like this dog on home. Got a good.

[Sen. Martine Larocque Gulick (Member)]: I was trying to do the kumbaya. I'll

[Sen. Ann Cummings (Chair)]: settle for no fist.

[Sen. Scott Beck (Member)]: Little bit of this, you know,

[Sen. Ann Cummings (Chair)]: you're not

[Sen. Randy Brock (Member)]: talking to your daughter.

[Sen. Ruth Hardy (Member)]: Madam chair, if I might before everyone leaves, I'm happy to look at the fund extensions and see about if there's, like, a way similar to, like, what we

[Sen. Ann Cummings (Chair)]: pay for school searches with this. We could take we could figure out a way to some of those sort of extra expenses. Yeah. Yeah. Something It would not be Yeah. I think

[Sen. Thomas Chittenden (Vice Chair)]: This is tied into that.

[Sen. Scott Beck (Member)]: And we You

[Sen. Ann Cummings (Chair)]: know, you can, in the end, there's going to be a package to get everybody on. In the end, there is a There is a Yeah. Because