Vermont Legislature SmartTranscripts:

[Speaker 0]: Is up there to remind us of her presence. She is on Zuno and has been faithful about that all week, morning and afternoon. So, we are going on to two eighty two And Patrick, you wanna crunch some numbers or try to do You want?

[Patrick Dugan (Joint Fiscal Office)]: Kirby has new language.

[Speaker 0]: Kirby has new language. Okay. So Kirby, come on up. And then I know we have two amendments. Something tells me that it might be close to strike all.

[Sen. Thomas Chittenden (Vice Chair)]: We could go.

[Speaker 0]: They go there? Okay. So we'll be doing a lot of straw.

[Kirby (Legislative Counsel)]: I was gonna see Patrick. Right?

[Sen. Scott Beck (Member)]: It was at This morning. He's over there.

[Speaker 0]: Those are the almost the last day. Then we we start over next week.

[Kirby (Legislative Counsel)]: Charlie, did it show up over there for me to connect? Seriously.

[Jake Feldman (Vermont Department of Taxes)]: That's next week's a little busy. Yeah. I'm just

[Kirby (Legislative Counsel)]: trying to get this.

[Speaker 0]: Well, they're supposed to be just in a list if possible.

[Sen. Thomas Chittenden (Vice Chair)]: While you're getting set up earlier, you planning to present either one of the amendments or what language are you gonna present for us?

[Kirby (Legislative Counsel)]: Stop controlling this committee.

[Speaker 0]: Right? Kirby has new language for the bill and the discussion we had last week or the beginning of this week, and Patrick had done some numbers. And then we will go through each individual amendment, and I assume there's letters in words and numbers for each adults. Yeah. Okay.

[Sen. Ruth Hardy (Member)]: I agree. But but but the

[Speaker 0]: pictures. Pictures are good. So,

[Kirby (Legislative Counsel)]: Carviki lives in council. I have if the committee's interested, there's three different draft amendments for a committee amendment for S two eighty two. The chair asked to prepare one that assume we'll go over first. And from there, I'll leave it to Pat. But what is

[Speaker 0]: Then who had you got next to mend? Who came to you first? That's how I was put that. No.

[Kirby (Legislative Counsel)]: I don't know. Know? The dinner party was the Okay.

[Jake Feldman (Vermont Department of Taxes)]: First through the door. Okay.

[Kirby (Legislative Counsel)]: Okay, So Senator Cummings had asked for a version of S-eight 22. This is and part of this was hopefully, I understand the ask. It was to take the wealth proceeds tax from s two eighty two Right. And do a version of that, but that in a in a nutshell, this version bases the tax base for that tax off of the federal NIIT, the net investment income tax, without the additional tax base that was added from the proposed version that was proposed by ITEP originally, and then also changing the threshold amount for tax liability before it happened. So that's what we'll look at.

[Speaker 0]: First goal on that was for both the tax department and the taxpayer to and I believe it was Minnesota was one of the examples, staying as close to the federal form and definition so you weren't having to do a second entirely different complicated. And I was hoping we could move the base up because it starts now at 250,000, which was set in 2013. And there has been a little inflation since 2013, but I think there's some trouble with that number. But that's what I wanted to see, and then we'll have Ruth Hardy talk to us about what the numbers look like.

[Kirby (Legislative Counsel)]: Yeah, so we'll look at all those. I do wanna preface it with a couple of couple of things about the drafting. First, I did redraft this from the original proposal in order to try to make it more succinct, wanting to compare it down and and better match, as the chair was saying, exactly what's happening at the federal level. So I believe this person does that, and we have tax here to tell me if if not. And second thing is that when senator Hardy came to ask about changes, there was discussion of the name of the tax and how what proceeds tax was possibly misleading. So for senator Hardy's version, I had changed it to investment proceeds tax. And for the sake of just drafting all the same, that's I'm using this investment proceeds tax.

[Speaker 0]: I can never remember the name. So this is yeah. This makes more And and Kirby pointed out

[Sen. Ruth Hardy (Member)]: that if it's the Vermont Investment Proceeds Tax, then it's the VIP tax. So you can sell it that way.

[Jake Feldman (Vermont Department of Taxes)]: So,

[Kirby (Legislative Counsel)]: yeah, if you would like me to change it back to what proceeds

[Sen. Christopher Mattos (Clerk)]: No, are

[Speaker 0]: that is fine.

[Kirby (Legislative Counsel)]: So we have just a couple of definitions for this version. It does use federal modified adjusted gross income using the federal definition from the federal NIIT and it uses a definition for investment proceeds to mean the same thing as net investment income, but as adjusted by this chapter, we have to adjust it even if you take out those additional things in the tax base because there are certain things that Vermont can't tax, so we still have to take that tax.

[Speaker 0]: That's right. Can't do it.

[Kirby (Legislative Counsel)]: Those are the only two definitions for this version. So it's written so that the Vermont investment proceeds tax is imposed pretax full year on individuals in states and trusts subject to the personal income tax. That's just to identify the tax liability and then it's established as follows. Number one, individuals with federal modified adjusted gross income exceeding 500,000 and for the second part, it says, faith and trust. I'll give that a second, but I'll explain number one first. So the chair asked to increase the threshold for being liable for tax. This means that it doesn't overlap with the federal anymore because as proposed it overlaps with the federal thresholds which were depending on your filing status, was $802.50 or 125. So this is 500 for everyone. No more distinguishing between filing status. It would be each individual 500,000.

[Speaker 0]: And that's where all the money came in because it's that top bracket.

[Kirby (Legislative Counsel)]: Sure Pat can help us with that. And then the second part here is for the states and trusts. I redrafted this to mirror more closely exactly what is said for states and trusts at the federal level. So it's adjusted gross income as defined for trusts and states at the federal level exceeding the dollar amount for the highest federal tax bracket, which is for the federal investment tax, that's what they use. So this one is going to be a lower threshold than the $500,000 but it's lining up with

[Speaker 0]: We may have federal takes that $500,000 down.

[Kirby (Legislative Counsel)]: Moving on, it says taxes imposed at a rate of 4%. That's the same as what was originally proposed. To remind you, the federal tax is 3.8%. Senator Chittenden, I apologize. You asked me in the hallway what federal rate was and I didn't tell you 3.8, I was wrong. So 3.8 for the federal and a 4% being proposed here and it's on the lesser of investment proceeds for the taxable year which goes to our definition up here. It's the federal tax base with a few changes. The lesser of that or federal modified adjusted gross income for the taxable year reduced by $500,000 So if your modified adjusted gross income is lower than $500,000 there would not be any tax liability even if you did have investment proceeds, but if your federal modified interest income is more than $500,000 that's when there could be tax if you also have investment proceeds. From

[Sen. Christopher Mattos (Clerk)]: the previous version, was over $10.

[Jake Feldman (Vermont Department of Taxes)]: Is that still in

[Sen. Christopher Mattos (Clerk)]: here or is it now just any dollar over the investment income? Because I think the federal one, if you made over the 2 or $2.50 and then if you had investment income over 10,000 for trusts.

[Kirby (Legislative Counsel)]: Like, did you not get kicked in

[Sen. Christopher Mattos (Clerk)]: that 3.8% and still you've had over 10,000 investment and you've had to make over 200,000.

[Jake Feldman (Vermont Department of Taxes)]: Minnesota. Minnesota? It's

[Sen. Ruth Hardy (Member)]: It's a different state. Yeah.

[Speaker 0]: If that was the other state that has done something.

[Kirby (Legislative Counsel)]: Gotcha.

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

[Kirby (Legislative Counsel)]: So that's how this is set out and then for states and trusts, it's written just to mirror the federal treatment. So it's based off of undistributed, So if there are proceeds that are distributed, then that would go to the individual and be possibly taxable to the individual. So it's only been the case of trusts that are holding on to the investment proceeds. So it's the lesser of the undistributed investment proceeds for the taxable year or the highest tax bracket, federal tax bracket per state. Language in subsection C and D are the same as introduced, which are for administration. It's just to specify that this tax is imposed like a certain tax on top of any other tax including the income tax and then there's the provisions dealing with part year non state individuals and how that would be portioned like we do for income tax. So the next part is the determination of the net investment proceeds. I mentioned that we have to take a couple of things out, that's the only thing about this section is it's taking the federal tax base for net investment income but then taking income from US government obligations like US bond income and anything else that prolonged them, they'll have the ability to tax out of it. So there you are. That's a much simpler version than what we first looked at. The administration will be done like the income tax. So we just bring that in by reference. And it currently has an effective date of 01/01/2026. And we're changing the name to an act relating to the the VIP tax. Just kidding. Okay.

[Speaker 0]: Thank you. Sure.

[Sen. Thomas Chittenden (Vice Chair)]: I'll tell you a few things. Well, first of all, I I why I drafted an amendment was because our conversation last Friday before town meeting gave me the impression that there was committee interest to move something forward that didn't support, I don't support the bill as originally presented for a variety of reasons. One of them being that I do think people, wealthy individuals do migrate to tax sheltered, tax havens. There is an actual and a concerning amount of people that will leave the state at certain income tax rates or wealth taxes like this will motivate them for employment and living decisions. So I appreciate that you lowered it. I honestly didn't know, madam chair, that were that you were gonna come up with some new language. What I will say is this is moving in the right direction because I do fear that the more we tax these amounts, we are going to see people with high incomes leave the state taking not just losing that marginal amount, but the other amount that they are paying. So, what I would say to this is I appreciate that it's lower than the previous amount, but what you'll see in the amendment I'm gonna bring forward is it's even lower than this, and it also adjusts out capital gains, which is a concern that I do still have.

[Speaker 0]: Which then we may get into, is it enough money to make it worth? Lost my train of thought.

[Sen. Thomas Chittenden (Vice Chair)]: I didn't know what else you wanted to talk about that.

[Speaker 0]: No. I'm I got distracted here. Okay.

[Sen. Thomas Chittenden (Vice Chair)]: So I'm just saying this is

[Sen. Christopher Mattos (Clerk)]: 4% surcharge, You're gonna

[Kirby (Legislative Counsel)]: pay the regular income rate and then

[Sen. Christopher Mattos (Clerk)]: 4% on the investment part,

[Speaker 0]: on four this percent of this investments now, which we don't tax now. It gets taxed at the federal level, somewhere where we don't go on to federal level.

[Kirby (Legislative Counsel)]: These these are items that are that are part of the income tax base also. So you'll get taxed

[Sen. Christopher Mattos (Clerk)]: at your personal income. Right?

[Kirby (Legislative Counsel)]: Yes. When it comes to certain capital gains, certain dividend income, it is taxed at the lower rate. But otherwise will pretty small income tax and then you'll have

[Sen. Christopher Mattos (Clerk)]: a 4% on top of that,

[Kirby (Legislative Counsel)]: correct? Yes.

[Sen. Christopher Mattos (Clerk)]: Now is there any, has there been any contemplation of, alright, you had an investment gain, you get taxed 4%, it's that next following year you have that same individual, they still make over 500,000 but they have lost $100,000 investment income. I know they'll lower their tax liability, but would they then be able to ask for a 4% credit?

[Kirby (Legislative Counsel)]: No, there's nothing in this tax about like a carry forward of a loss or something.

[Speaker 0]: Yeah, any more than if you got fired, you couldn't ask On

[Rebecca Sampson (Deputy Tax Commissioner)]: your credit on your side.

[Kirby (Legislative Counsel)]: On your on your personal income tax in Vermont, you can. You you can have a loss. Mhmm. Yeah. Mhmm. On on on the Vermont corporate income tax, you can have it. Yeah.

[Speaker 0]: Questions for Kirby on this one I'm gonna have Patrick come up and give us the numbers on this proposal is this the one you've had some issues with? Or

[Patrick Dugan (Joint Fiscal Office)]: Well, I think there's two options. It's either Kirby can walk through all three, and I can talk about the three holistically.

[Speaker 0]: Okay.

[Patrick Dugan (Joint Fiscal Office)]: Or we can flip flop for each one. His write

[Sen. Thomas Chittenden (Vice Chair)]: up has all three of ours, like

[Sen. Scott Beck (Member)]: yours, mine, hers, hers. Okay. Alright.

[Speaker 0]: So let's walk through it, and I think oh, we got Sandra back with a question. We've got No. I don't have a question. Oh, okay.

[Sen. Ruth Hardy (Member)]: Is this mine now, Kirby?

[Kirby (Legislative Counsel)]: Yes.

[Sen. Ruth Hardy (Member)]: Okay. So, can I just do a little intro So, to my thinking on this you'll see is, I do the same thing that the chair did in terms of narrowing it to just the, whatever the federal structure is and but I kept the income levels the same? Obviously, that's all open to debate. I was just for comparison purposes keeping them at the $200,000 which is the federal level. But what I did was tied it to our discussions about the Education Fund. So, than having the income, I think in the original bill, the income actually didn't go to the the school construction fund. Correct? That we you and I talked about that. Something else went into the school construction fund in the original bill. But what you'll see in this version is that the income or the revenue from this would go to the Education Fund and there would be intent language included that this was to fund school, universal school meals. And then I had a I spent a lot of time trying to figure out, you know, at this level, there's more money available than what would fund universal school meals. It would so, where I ended was and you can see it on the screen that Kirby's got it up there. It's the OPEB health insurance benefits. And I was trying to come up with a couple things that we have, you know, sort of added to the education fund in the last few years that are that we pay off the top, so to speak, of the education fund. I tried to come up with a number, as I think I mentioned to you about mental health costs for school districts, I poured through a bunch of school budgets, and I think estimating the mental health costs or the social service costs right now would be nearly impossible. So that's why I stuck with the OPEB, which there is a number. This wouldn't cover both of those, but it would the intent would be that's what this additional revenue is to cover so that we are clear about what the tax would go toward. And then sort of as a nod to the conversation that we've been having with s two twenty, I believe it is. Mhmm. I included provision that would lower the excess spending threshold for school budgets to 115% of the prior year, So that that would hold down some of the education costs and also though exempted, voter approved bonds for capital construction. We

[Speaker 0]: have amendments similar, so I'm gonna do that because this one's gonna go to the pros.

[Sen. Ruth Hardy (Member)]: Well, this is I mean, I've just sort of put them all together in this bill to try to make it a package. And then the one thing I and Kirby and I talked about this is to try to the I tried to do what Minnesota did with the farm income, the sale of farm property, but we couldn't come up with something that was equivalent. First, Kirby talked about potentially tying it to the use value appraisal program. There are lots of properties in that. Not all Yeah, farm and I was like, no, I don't think that's the right one. So, then there are farm classifications, small, medium, and large farms. So, I was trying to tie it to if there was a sale of a small farm because it's not supposed to be I think in Minnesota it was the smaller farms that sale of the sort of family farms. But we didn't get that far with that. There's so if people are interested in that, I think we could probably talk to Bradley Showman who is the drafting attorney for Ag.

[Kirby (Legislative Counsel)]: I've spoken to Bradley and we could look at the farms that are regulated as small farms, but it's still not perfect. We don't have a perfect fit. No. There's things we can look at.

[Sen. Ruth Hardy (Member)]: Yeah. I was trying to get there, but we just ran out of tobacco skills, so that's where

[Speaker 0]: investment

[Kirby (Legislative Counsel)]: proceeds that.

[Speaker 0]: Yes, let's go through that one. And then if we can resolve this bill, then we will go on to two twenty and we can meld all of that. If we put this money is dedicated to, it's gonna have to go to appropriation.

[Sen. Ruth Hardy (Member)]: Even though it's an Ed Fund expense? Those are Ed Fund. Both the Yeah. I don't know. Yeah. So I

[Speaker 0]: will check all within the Ed Fund. Just It was but that wasn't within the Ed Fund. So they were raising the house was raising taxes and spending it, but we are dedicating this to the Ed Fund. Yeah. And this wouldn't necessarily be money that went to the Ed Fund.

[Sen. Ruth Hardy (Member)]: Correct. I mean, would have the effect, and depending on where we set all the thresholds in terms of the income and percentage of the tax, etcetera, would have the effect of lowering the property tax by the same amount that we're raising through this tax.

[Speaker 0]: Okay, let's walk through that first section.

[Kirby (Legislative Counsel)]: So the differences between what we looked at the first time and this include the the we're we do we do have a definition for threshold amount because the amount is tied to the federal law and why it's taken off. So the first one we looked at, since it was $500,000 for every individual, the threshold amount essentially for what we just looked at was $500,000 In this case, it's going be tied to the federal amounts for each of these categories, out of all the things you're looking at, this is the one that would, I would say, piggybacks off of federal return the most because it uses the same thresholds and it uses the same tax base except for the things that we have to carve out or provide and that's really, that's what it did. It doesn't have the like we were looking at carving out one other thing, the small times, but this person doesn't have that because of, you know, more work to be done if you wanted to go that route. And then there is an additional added here that's just about the deposit of the revenue into the education fund with the intent for the areas that Senator Hardy mentioned, universal meals and retired teachers health and medical benefits fund. Okay. And then the rest of this is, we do need to change the income statute to include this revenue and then sections three and four related to the s two twenty filers that we talked about. And that's it.

[Speaker 0]: Okay. So the first section, which I wanna do because I wanna do the m two twenty discussions separately, this basically uses the federal law and the federal numbers and just transfers it so you're also going to pay this in Vermont and we treat it it proves gross receipts. Right? Not Capital gains? Capital gains.

[Kirby (Legislative Counsel)]: It it does it uses the same tax base. So Yeah. So that means capital

[Speaker 0]: gains are We still our intent may be to try and leave out

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

[Speaker 0]: At one point someone said the original bill didn't take into account Vermont's farm and small business exemption.

[Kirby (Legislative Counsel)]: Do you mean the partial exemption for capital gains?

[Speaker 0]: Yeah. That's what they were referring to.

[Kirby (Legislative Counsel)]: Yeah, as long as we have the partial exemption for capital gains, it would mean on your income taxes you could have capital gains that that are excluded partially.

[Speaker 0]: Okay.

[Kirby (Legislative Counsel)]: But but they would be fully taxed like this if you hit all of the the charge to get taxed by Yeah. That's a

[Speaker 0]: lot of things to get. Okay. But would it be possible to use the Vermont Capital Gains number, which would exempt small businesses and farms are part of that value?

[Kirby (Legislative Counsel)]: We could do something like that. Because threshold values are already what they are, if you only have a capital gain, let's say you're married and you have a capital gain of less than 250,000. Unless that brings unless that capital gain brings your modified adjusted gross income up past that 250,000 mark, you wouldn't owe tax

[Sen. Scott Beck (Member)]: other this.

[Speaker 0]: Okay.

[Jake Feldman (Vermont Department of Taxes)]: Because

[Kirby (Legislative Counsel)]: that it's the lesser of the modified interest income reduced by that for married thousands. So as long as long as you're understanding that

[Speaker 0]: that Okay.

[Kirby (Legislative Counsel)]: For for smaller capital gains, it's possible that the stock will be hit hit here. Okay. But we but we could we could look at a way to try to incorporate an exclusion in this.

[Sen. Scott Beck (Member)]: And senator Chittenden has an amendment that excludes all capital gains. And do we have any questions on this one?

[Sen. Ruth Hardy (Member)]: Can't Can I just ask you what you mean by including, talking about S-two 20 separately? Because I was sort of thinking about them this as altogether. Altogether.

[Speaker 0]: Well, I got two twenty in here with a special. We can look at this, and we can look at but Senator Chittenden, I think, do you also have an amendment to 20?

[Sen. Thomas Chittenden (Vice Chair)]: So close. We just, you know, we could be ready to present till tomorrow because we're looking at we're announcing appeals language but so I would have to ask you 20 language for tomorrow.

[Sen. Ruth Hardy (Member)]: Okay. Well, I guess I just I think, you know, the way I was trying to think of this in the original bill is a is a package of how do we reduce property taxes. Some of it is through new income, some of it is for less spending and it allows, you know, at least some school construction to go through with, the exclusion from the the excess spending threshold.

[Speaker 0]: Okay. Yeah. There's exclusions that you're doing.

[Sen. Scott Beck (Member)]: It's moving.

[Kirby (Legislative Counsel)]: You canceled that too.

[Sen. Ruth Hardy (Member)]: Yeah. Yeah. I mean, there was just a bond that was passed with that as one of

[Speaker 0]: the, yes, contingencies. Well, Martine's hand is up. I'm sorry, Martine.

[Sen. Martine Larocque Gulick (Member)]: That's okay. I have a question for Kirby. Hi, Kirby. Wondering, I think in the original bill, there was a second homes tax and I think that was the tax that went to the school construction aid fund, is that correct?

[Kirby (Legislative Counsel)]: Yes, that's right. As introduced as 2B2 included the classifications language from Act seven and then half of that revenue go toward school construction aid. What we're looking at here is just versions of a committee amendment that takes out those other parts of S-two 82.

[Sen. Martine Larocque Gulick (Member)]: Okay, so it would take out the second home tax?

[Kirby (Legislative Counsel)]: It would, but I would note that House Ways and Means has been working on tax classifications all session and it's anticipated that in the next couple weeks they'll vote that out of the house or plan to. So it something like it seems seems like you could expect to see a version of it and the version you'll see is the act 73 framework and then fleshed out more based off of the report that was done by the Department of Taxes last summer that pointed out all of the things to help set the classifications into motion. So you'll just see like a built up version of the same thing.

[Speaker 0]: And I think in Act 73, that money is looked at to cover the cost of the homestead exemption, our present pay based on your income, because right now that money if you don't pay a thousand dollars, that money comes out of the funds, so the tax rate has to go up on everyone to raise that. This 73 that we passed says that the money from second homes will offset that exemption, and until we know the value and the number of second homes, we won't know how much money there is. But if we spend it twice, we could end up being counterproductive or ending up having to raise the base property tax rate if we don't raise enough money to cover the exemption cost.

[Kirby (Legislative Counsel)]: And so the classifications report that I referenced was done because the accident needs were told to do it and part of that charge also involved having the department estimate some what their rates would need to be for the new classifications in order to pay for the homestead and some other things too. So you can look at that x 73 report on classifications, the part without to see those Although Are we

[Sen. Ruth Hardy (Member)]: doing that in the second half? Yes, we probably doing that in the

[Speaker 0]: second half of the session.

[Sen. Martine Larocque Gulick (Member)]: Can I just finish what I wanted to say, and thank you, Kirby, for that answer? What I liked about Senator Viejhovsky's bill was that it dealt with second homes regardless of Act 73. And I'm concerned that I'm just concerned about the fate of everything in Act 73, and I liked that it was separated in this bill. So I don't know if there's a way that one of these amendments can include the second home piece.

[Speaker 0]: There's a whole legal precedent for if we pass two bills that do with the same thing, which one takes precedent, and I think if we do that, it would, I think we would take precedent, but I could be waiting for the secretary to come through the door. We could be undermining the other bill that we've already passed. You can't spend the money two places, even if we'd like to.

[Kirby (Legislative Counsel)]: I don't know if this is helpful, but I believe that when classifications come back over to the Senate, will be part of the yield bill.

[Speaker 0]: Yes, I think it does, because yield doesn't have to mean crossover, but they are, and it is about ready to go, and I think they're planning on getting it out next week. So we will get it sooner than we got it last year, a lot sooner. And then we can look at it and we can redesignate once we have more information. Sandra Beck. What?

[Sen. Scott Beck (Member)]: I don't

[Speaker 0]: have a question. Okay. Sorry. No, doctor. It's going up. I don't look look like I'm ignoring you. Okay. Because you're between me and the screen, so you're not in my blind spot over here where Sandra usually is.

[Kirby (Legislative Counsel)]: Is that why she's at help?

[Speaker 0]: She's at Now she's in front of me, but I can't see her hand. Okay.

[Kirby (Legislative Counsel)]: Okay. So we have the third version of an amendment, is recommended by Senator Chittenden. Can walk through? Oh, yeah. Yeah.

[Sen. Thomas Chittenden (Vice Chair)]: Do mind if I set it up?

[Sen. Scott Beck (Member)]: Yeah. Okay. Great.

[Sen. Thomas Chittenden (Vice Chair)]: So I also wanna say from the outset that I'm already hearing grief from our conversation last Friday that just talking about these taxes sends signals to people about them wanting to possibly flee the state. But I have to acknowledge from the outset, we are the tax committee. We have to talk about taxes and they make a beautiful bill, this is absolutely relevant. I also want to say that after that conversation the Friday before break, I was speaking with, as many of you know, I work at the North School of Business with faculty that are taxing out in finance and I was just praising this and talking about it and they reminded me of multiple examples of faculty that either left the university or as soon as they retired, they left the state in order to achieve better, more favorable tax status. They also reminded me of times that faculty are getting are paid well. I don't

[Kirby (Legislative Counsel)]: think they're they're not in

[Sen. Thomas Chittenden (Vice Chair)]: these tax brackets, not the majority of them. I'm nowhere near these brackets, but it was just relevant to me that also in the hiring practices when we offered extended offers to people that are qualified positions, more than once, multiple times, people would turn it down because of the tax circumstance that they saw when they looked at Vermont. So my point of all this is that I do feel tax plight is a real thing and I wasn't necessarily persuaded by the presentation by Doctor. Young and I found some of his arguments actually were giving me the opposite opinion. That's neither here nor there and I see why you don't like to be

[Speaker 0]: We're not going fight that.

[Sen. Thomas Chittenden (Vice Chair)]: So similarly during the break, and this is related to the fourth item of what you'll see in my amendment, a CPA in my district that I greatly respect, I won't use names, okay, But he reached out and he asked me about this talk about it and he further validated these concerns because he does work with high net worth individuals. And he said they absolutely will move out of state and then he started to lay the numbers out. And then the one millionaire I know did reach out. I won't name that name either. Okay. But yeah, he's like, absolutely. He just got

[Speaker 0]: some more rules.

[Sen. Thomas Chittenden (Vice Chair)]: I think I know one. I know one. So he's a good guy. Alright. We'll leave it there. So my point is during that conversation with the CPA, he did also remind me that there is something that we have not done that 36 other states have done and nine states that don't have an income tax. It's irrelevant. So, 45 out of these 50 states have adjusted their tax code to allow for a pass through entity tax, a soft deduction cap, which was adjusted in the big beautiful bills at now, a $40,000 cap for a period of time. And they reminded me that this is a way that would cost Vermont nothing. In fact, what we had when we passed this through this senate two years ago, last biennium, actually would have raised to say about 5 to $7,000,000. I don't think we get that much this time. I don't think JFO has done this analysis yet because of the $40,000 cap, but it would be actual generally it would be more money to Vermont at some amount if we kept the same construct and it would save small businesses in Vermont millions of dollars in their federal taxes. And so I'm happy to revisit the SALT deduction cap, but I just want to state that 36, so 45 out of these 50 states, we are one of the five that have not adopted this SALT cap workaround, so I have that in there to also not only raise money but also to just be able to look my millionaire friend and my faculty friends in the eye and say this is a rational tax adjustment in light of HR1 which I want to acknowledge to benefit the wealthiest Americans with major tax deductions as was presented to us in testimony. So I am supportive of recalibrating our tax code in light of this new federal landscape. And so my objective, my intent that Kirby's going to walk through in a minute here is to do a few things. One, raise those thresholds to even higher amounts up to a million dollars per family, up to a per

[Speaker 0]: Thresholds for when this VIP Correct. It can't see. Okay.

[Sen. Thomas Chittenden (Vice Chair)]: It's still at the 4%. That is certainly fungible, but importantly too from the discussions and presentations and from these conversations, capital gains is a strategic monkey. What you can choose when you take capital gains, and that is an important factor that I also have been told by my now three years on this committee that a lot of our millionaires in Vermont, I've heard of estimates of more than half, if you can correct or otherwise adjust that rough estimate, our millionaires for a year or two when they are approaching the end of their successful working life, running their business, and they are liquidating their positions in some entity, and then that is when they make a lot of money, then they use that just like people use their 401ks or 403bs. So, capital gains are also they can chew. They have a great deal of control over when those occur. So I don't want to tax capital gains because I do think that will, from my conversations with my tax accountant friends and CPAs, will drive more tax flight in the state. So what you'll see here is it's the similar constructs otherwise presented but it entirely excludes capital gains which cost the revenues by about 40% or something. I'm sure Patrick will speak to that more. Two more things. So the intent of what I'm trying to do is not to punish the wealthy for making more money. It is to recalibrate our tax code, drawing revenue from those that can afford to pay it, especially in light of the day immutable bill, and to pay for something that this legislature did, which imposed the property tax increase on all of the bonders with this universal bills. And so my my intent with the the number was to raise about now to 18,000,000. I don't know if I'm there because we don't have the salt estimates, and Patrick's gonna go through the numbers. I think the paper says about 10,000,000 from the first piece, and then whatever the salt is. But it's that way, so when you look at these, I think that my bill would affect 972 Vermonters. When you look at these Vermonters in the eye and say, if this goes into effect, you will pay 4% on the net income investment in revenues that you get, these well proceeds as well as proceeds tax. You would be doing a couple of things. One, you'd be feeding all the kids in the great state of Vermont and you'd be buying down the property tax rate for yourself and for the whole state by about 1%. And a good friend on this committee reminded me, actually, you know, if you're one of these nine seventy two Vermonters that would be affected that are making pretty good money, I'm guessing they have pretty nice houses and a 1% deduction on their property tax bill, my estimates would probably save 1 to $2,000 if they have commercial properties, they're actually looking at even more of a savings. So my point is they might end up writing a check for 10 or 12,000 more dollars in net income over the this income taxes, but they would be seeing some benefit indirectly due to the overall property deduction. The last thing I wanna say is that s 45 is the last piece we could talk about as much as you all want. I just couldn't support the bill as presented, and I didn't know where you were, madam chair. So as I saw on the agenda this Thursday, I just sent an email Monday night saying, these are some contours of things that I could support based on the conversations with my constituents and the testimony that we've received.

[Speaker 0]: Okay. Word of caution. Yeah. Do not ever say that their property taxes will go down. They will go up a thousand dollars less than they would have. We got it. We were to survive it and school spending goes up 60%.

[Sen. Christopher Mattos (Clerk)]: Fair enough.

[Speaker 0]: Don't get caught in that one. What I got from doctor Christopher, whose last name I'm forgetting, was that yeah. It's probably right. Millionaires that are settled are probably not gonna uproot their families and well, they might change behavior, so they might not endow college chair, they might not build a choir station for the city or police station, they might not endow the symphony or that's the kind of behavior we might see if people feel we've gotten greedy and we don't appreciate what they do contribute. The other thing I got is we wanna get them when they're middle aged and reaching their or we wanna get them here and get them settled when they're young professionals or they're starting their business so that when they become millionaires Okay. They stay. We don't wanna move them out when they're 35 to get more money. We want to get them and keep them. And there was an article this morning, New England as a whole has seen a mass out migration in the past year. Massachusetts has lost 33,000. Vermont taking births and deaths, but we are I think 700 people less than we were. It is mostly middle income that's still looking to find jobs and move around. They are going to places with the greatest in migration, Texas, Arizona, as long as it wasn't really on that list anymore. And then another article had a list of millionaires. These places have 74,800 millionaires. Very different tax base than we have. I mean, I didn't see anybody else with a thousand. So we are there is it's always migration going on, but there is out migration. Vermont was lost and it looks like its people in their productive years. We know there's a whole bunch of second home in Florida or maybe here, but retirees that are snowbirds and where their residential nest is, I don't know. But we do have that and the weather once you're too old to ski doesn't work in our favor. So, we've got some know there's a lot I

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

[Speaker 0]: Yeah, we've got some workable programs. I'm trying to think of investment proceeds. Alright, that's Ruth's that's out there. No that's not Tom. That's yours.

[Sen. Thomas Chittenden (Vice Chair)]: I have the same construct but at higher threshold so it starts at 1,000,000 for married individuals 700,000 for individual filers 500,000 filing separately.

[Speaker 0]: And that's for the investment tax? Correct.

[Sen. Thomas Chittenden (Vice Chair)]: Alright. And you reminded me of your comments, madam chair, that it's it's also just my cousins, my best man at my wedding, two of my groomsmen, my high school friends, they they left the state because it was just too the taxes were so high. So it said that people do migrate. Because of taxes.

[Speaker 0]: I was It's not just the taxes. It's the cost of living. Yeah. Food's higher here because unless we wanna have boards with the state food, we can't grow tomatoes year round. In Kentucky, they're planting now, and their crops will be at the May. I don't put anything in the ground before the May. The climate limits us in some ways. But that's another question. Why don't we have Patrick give us the numbers?

[Sen. Martine Larocque Gulick (Member)]: My hand is raised when you have a minute.

[Speaker 0]: I'm sorry, I can't, there you are.

[Sen. Martine Larocque Gulick (Member)]: I know, I know, you can't see me. I just have a couple comments and then I would like to ask a question of Senator Chittenden. First, I think some people leave the state because they don't like mud season and they can't find a house. I also think charity will never be a substitute for appropriate taxation. Those are just my two comments. Thomas or senator Chittenden, when you say millionaire, are you talking about someone who's making more over a million dollars a year?

[Sen. Thomas Chittenden (Vice Chair)]: I didn't look at his tax return, but I would have the impression that he's making more than a million dollars of these types of incomes excluding capital gains based on the context of the conversation.

[Sen. Martine Larocque Gulick (Member)]: I'm just wondering generally what we mean by millionaire. What what's

[Sen. Thomas Chittenden (Vice Chair)]: number? Passive income.

[Speaker 0]: I think what the number we're using is the tax department, which is adjusted gross income of 1,000,000 or more.

[Sen. Martine Larocque Gulick (Member)]: A year. Okay. Thank you.

[Speaker 0]: So it doesn't count your Mickey Mantle baseball card collections or where's Mickey Mantle? There he is.

[Sen. Ruth Hardy (Member)]: I'm holding it up, Martine. Okay. Doesn't count

[Speaker 0]: until you sell it. But when you sell it, you may end up in that top tax bracket for one year if you get a really good buy.

[Sen. Ruth Hardy (Member)]: I think Chris Are you if

[Sen. Martine Larocque Gulick (Member)]: you have 3,000,000 in your four zero one k, but you only make 50,000 a year, you're you're not a millionaire?

[Speaker 0]: No. You're not driving now. It's just not. And that's how we ended up with trouble with people getting a property tax rebate living in a $500,000 key condo, and they would show up occasionally. But that's we don't know what people's investments are. We don't you know, I mean, for most people, their biggest investment is their house and we have the best value. But you don't know what my 401 k is, and I don't know what yours is or what your retirement settlement is or if your grandmother left

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

[Speaker 0]: billion dollars twenty years ago. So we have we deal with what we deal with. There are definitely wealthy individuals we aren't picking up. There are people that have trust funds that live very simply. We can only deal with what we have.

[Sen. Ruth Hardy (Member)]: Senator Mattos and I have both had our hands up for a while. You haven't spoken yet.

[Speaker 0]: No, you're fine. You're fine. I'm sure you will.

[Sen. Ruth Hardy (Member)]: I mean, I wanted to echo a couple of things that Senator Gulick said. The the reason that people leave the state is is largely because they can't find housing. I mean, and and and because of factors that have nothing to do with taxation. And because the a few people on the committee have anecdotal evidence of that, I think is is really I think it's repeated constantly. It is problematic. I mean, the the data show that young people are much more likely to be mobile, and young people are much more likely to be moving because they can't either find housing or they're moving for employment purposes or because they've just graduated from college from UBM or Middlebury or Norwich or one of the colleges in the state. And so I think that we have to be really careful with saying, well, I have a bunch of friends who send this to me that makes a difference. And I completely agree that charity does not replace an equitable, fair, and efficient tax system. We have public things that we need to fund, our schools, that will never be done through charity alone. And I think it's important people move to the state because we have good schools and because we have a beautiful place to live and because we have a a fair and equitable state. And the out migration in New England and Vermont in particular, a lot of it was there was a lot of in migration during the pandemic. We saw a huge bump in population, and now we're seeing some of those people leave. So there was an up and now, of course, there's going to be an an adjustment down. And some of it is also due to immigration policy because a third of the people who in migrate annually to Vermont are actually in migrating through immigration, and that isn't happening.

[Speaker 0]: Okay. No. This study broke out. This was domestic migration, and we're not gonna go there anymore. We're gonna go to the numbers with Well,

[Sen. Ruth Hardy (Member)]: I mean, everybody's saying lots of things. So I just feel like everybody should get know, I I I think a lot of that has been said is based on sort of personal speculation, and it's if if that's gonna be the case in here, then everybody gets to to have their chance at it. And we the data on migration does not back up some of the assertions that are being said. But Chris wanted to talk, so I'll let him refute me if he would like. Right. And I

[Sen. Christopher Mattos (Clerk)]: have nothing to add. We got more of her butt.

[Sen. Ruth Hardy (Member)]: Did we get Pat? I

[Sen. Christopher Mattos (Clerk)]: do have something to say.

[Speaker 0]: We have questions on the proposal. We have three proposals before us.

[Kirby (Legislative Counsel)]: Yeah, I do.

[Speaker 0]: If we don't have questions on the wording of the proposal, I'm gonna Pat just does these Well,

[Sen. Christopher Mattos (Clerk)]: I have a question for Senator Chittenden on his proposal.

[Speaker 0]: Okay.

[Sen. Christopher Mattos (Clerk)]: So I skipped ahead to look at Patrick's numbers so I could figure out that $10,000,000 number. You look into anything about looking at the median income tax paid by those nine seventy people and how many would have to leave to actually make it a loss of revenue to the state and whether take jobs with them because they're a business owner or anything like that?

[Sen. Thomas Chittenden (Vice Chair)]: I would, in my defense, figured it's still crossovers. I think this bill is gonna go forward. Having this would get me enough to be comfortable with the bill so that I would figure that analysis would occur over

[Sen. Scott Beck (Member)]: the coming weeks. It's not quite

[Jake Feldman (Vermont Department of Taxes)]: that special. Okay. I'm just curious.

[Speaker 0]: Let's look at the numbers. Patrick's gonna come out.

[Patrick Dugan (Joint Fiscal Office)]: As you know, I'm Patrick Dinnerton. I'm with the Trump office for the record. As I I believe all of you have noticed, there are there's a document on the website under my name that I am going to share.

[Sen. Thomas Chittenden (Vice Chair)]: Usually, the declaration of partisan or nonpartisan analysis.

[Patrick Dugan (Joint Fiscal Office)]: We do provide non partisan analysis to all legislators in the general assembly.

[Speaker 0]: He's giving us numbers, not statistics.

[Patrick Dugan (Joint Fiscal Office)]: Yes. So, yeah, so I guess I was gonna try to do a little bit, like, a holistic view. Is that big enough for everyone? Just comparing and contrasting the three proposals in front of you. Madam chair, I had mentioned to you that there was an aspect of the estimates on the $500,000 threshold that actually Jake from the tax part pointed out that there was a step missing in the analysis, so I

[Speaker 0]: do apologize for that. Okay.

[Patrick Dugan (Joint Fiscal Office)]: So previously that number, when you saw it last, was closer to $40,000,000 with the additional step, it's more like $30,500,000 And again, that's referring to the setting of the MAGI for $100,000 estimated to affect about 3,200 taxpayers in Vermont. So the second proposal, which is the one that Senator Hardy put forward, that is looking at Basically, that 48.6 number was what we had seen previously. It's based on the federal income thresholds. It has I have not made any adjustment for the farm aspect, because I know they're still kind of working on some of the definitional pieces of that, but that, if that were to change the number, it may be affected

[Kirby (Legislative Counsel)]: a bit.

[Speaker 0]: Okay, it

[Sen. Ruth Hardy (Member)]: was not in there yet anyway.

[Patrick Dugan (Joint Fiscal Office)]: Yeah, and I just wanna make sure I mentioned that. And then, so yeah, that would be applied to roughly 12,000 taxpayers. And then the third proposal, which you all just saw, it excludes the capital gains and does have the much higher thresholds, which I've put them down here just for reference for everyone as you're comparing them. But estimating that to generate approximately $10,000,000 in revenue and apply to less than 1,000 taxpayers, if you want. So, you know, the higher you go with the thresholds, obviously, the narrower the base you're talking about. And, you know, generally speaking, with narrower bases, we do typically see a little bit more volatility in them. Not to say volatility always to the down, it's go both directions when I use the term volatile. So, yeah, just a reminder, these are some of the these are the income types that are included in the federal definition. One note about the business or trade income aspect, If you're an active, if it's an active business that you are actively running and all that kind of stuff, it's not included if you own a business that you it's just purely passive for you. And yeah, I guess quickly about the SALT cap workaround piece. So, you know, I think previously when a lot of the states were looking at it and passing it, the threshold was set at $10,000 which, you know, particularly prior itemizers was quite a pretty large restriction on their ability to Your property tax. Yeah, credit for the taxes you're paying at the state level. Since it's been increased to 40,000, there's kind of two pieces. I don't know if any state who hasn't passed it is considering it because it is quite, you know, it's quadrupling the threshold, adds up to pretty significant savings for people on their federal return who have that type of income. And the other piece, oh, the revenue you would expect to generate would be much less than what you've seen previously.

[Speaker 0]: I send your check.

[Sen. Thomas Chittenden (Vice Chair)]: You would accept even at the $40,000 cap, it could still generate some revenue, just that analysis would need to be done.

[Patrick Dugan (Joint Fiscal Office)]: Yeah. Because the way you end up structuring it is you implement the entity tax and then you give them a credit on their personal return that you just have to calibrate that to,

[Speaker 0]: you know, be positive. It is Thursday, but we do have a miscellaneous tax bill coming in, as I remember. This got somewhat complicated last time we tried it. If we're gonna get these bills out, I'd like to get them out and not add any more that we have to to get them out because every time we add something, We're we're adding this bill.

[Sen. Ruth Hardy (Member)]: I know we did this.

[Sen. Thomas Chittenden (Vice Chair)]: We did. We passed it on to the senate. It went through unanimously just it did end up getting passed with

[Kirby (Legislative Counsel)]: the law. But but by any

[Sen. Thomas Chittenden (Vice Chair)]: for different reasons.

[Sen. Ruth Hardy (Member)]: Was the last I I thought it was too too late.

[Speaker 0]: So The way it was was last year, and part of it was that they were expiring this January 1. And they all they really only benefit is I remember people who own

[Kirby (Legislative Counsel)]: It's a

[Speaker 0]: businesses or partnerships that you have something to work through. So somebody that works for UVM and gets paid a salary won't have it again.

[Sen. Thomas Chittenden (Vice Chair)]: These are our small companies. S Corp, LLC,

[Speaker 0]: Sloud, Partnerships. Bigger companies too. So anyway, that I think I'd like to keep this bill as simple as possible. And on this one, we have three proposals. I would like to keep all the two twenty proposals for capping spending, that discussion going on 02/20, or we could if that makes it the only way we can get this bill out. We can put it on here, and then tomorrow we can start on next week's stuff. But show of hands, who is interested in going forward on any of these proposals? Okay, so Senator Chittenden would with

[Sen. Thomas Chittenden (Vice Chair)]: SALT, including matching configuration, but you also made a good point. All of this could be done on miscellaneous tax legislation. Yes,

[Speaker 0]: SALT is really not relevant to this bill. It could get us challenged on the floor. Okay. So I've got three who are not interested. I've got three who are interested, and then there's me. And I'm still thinking, but I would like to see if we couldn't find something that would bring us together and see where we can go. So I know I'm I don't know. Is there anything that could bring I didn't

[Sen. Christopher Mattos (Clerk)]: Not at the moment. No.

[Sen. Scott Beck (Member)]: Alright. Would have heard. Okay.

[Speaker 0]: So anything that could bring Yeah.

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

[Sen. Scott Beck (Member)]: We're on the ships. We're looking for better. Yeah.

[Sen. Ruth Hardy (Member)]: Well, that's why my version and I did both. I was trying to put them together, putting a decreasing this excess spending on both and raising about this. This does raise revenue and it does credit. Well,

[Speaker 0]: one of them puts it. Yeah. Everybody. I'm sorry. One of them, as it came to us, puts it into school construction. And when we looked at it, we thought it was a. But now it looks like that's thirty, forty eight, and 10. Because we moved that up to the 500 and the original bill.

[Sen. Ruth Hardy (Member)]: I think that having the conversation about decreasing costs and increasing revenue as part of

[Jake Feldman (Vermont Department of Taxes)]: the package is helpful.

[Sen. Ruth Hardy (Member)]: Because they're because mind you, also, increasing certain kinds of revenue decreases other revenue. You know, that's what I was trying to do in my proposals. Put it in the added fund and decrease property taxes on everybody who's paying property tax. And combining it with lowering the spending, excess spending threshold also lowers the cost of education or the allowable of education unless they spend over and vote twice. So that's what I was trying to think of it as a sort of package that does both and really focuses on how can we reduce our hourly taxes and come at it from both directions.

[Speaker 0]: I just noticed, I don't remember. We've been through her big time. We still have Rebecca, and Jake Feldman, the tax reform there to talk about this proposal. And then we can see if the proposal that you two put together for 02/20 would be something that could be supported by you.

[Sen. Thomas Chittenden (Vice Chair)]: I've been working with Scott this week to figure out an area of agreement on the excess spending threshold and we're gonna And

[Speaker 0]: they are the similar area where you are which is excess spending. Okay.

[Sen. Ruth Hardy (Member)]: I would really like to look at it all together. Okay. Then we

[Speaker 0]: will look at it all together. First, we're gonna have Rebecca come up. And, Jake, have you got something different for Rebecca on this one? We're together. Okay. You're together. Alright. Then you all can decide how you present together.

[Jake Feldman (Vermont Department of Taxes)]: Something about HR one, the federal. HR one, the Yeah.

[Speaker 0]: You could say anything you want.

[Sen. Ruth Hardy (Member)]: What

[Jake Feldman (Vermont Department of Taxes)]: wonderful privilege. So I was at home listening to this committee before break, before town meeting today, and there was some discussion of HR one and who would get upset. I was getting a little nervous in my chair at home because the discussion I thought was not accurate, and I was wishing that I was in the chair here to correct the record, but the chair of this committee said, summarized HR1 perfectly in two sentences. And what she said was that HR1 is not a new benefit for higher income people. It's an extension of what's been going on for the past eight years, which is true, since TCJA. That's important thing one. And when the Tax Cuts and Jobs Act happened in 2017, the legislature did increase taxes on high income earners. She made two observations, which were exactly what I would have said if I had been here.

[Speaker 0]: Wow. I think that's everything right. Yeah, I've been getting things saved. Yeah, the rich person got a $57,000 decrease, and I have no idea where that number is coming from. There are just and they're form letters, so somebody's putting out numbers, but I'm not getting any background on the numbers. And I couldn't find anything that said that they got a new decrease.

[Sen. Scott Beck (Member)]: They got the old one. Right.

[Jake Feldman (Vermont Department of Taxes)]: If you compare it to how the TCJA expired, if they had allowed that the Tax Cuts and Jobs Act to expire, then wealthy some wealthy people are getting 57,000 or whatever. But from their experience of what they pay each year in triple tax, there's no 57,000 down.

[Speaker 0]: They are experiencing $57,000 more in their pocket.

[Sen. Scott Beck (Member)]: It's just straight up from the office. Is

[Sen. Randy Brock (Member)]: it the same

[Speaker 0]: as mine?

[Kirby (Legislative Counsel)]: That'll work.

[Jake Feldman (Vermont Department of Taxes)]: Goes right here.

[Speaker 0]: That was taken from Power Strip. There's a Power Strip up here that's closer to east.

[Rebecca Sampson (Deputy Tax Commissioner)]: I think Hurricane is

[Patrick Dugan (Joint Fiscal Office)]: in Dubai.

[Speaker 0]: Power Strip.

[Jake Feldman (Vermont Department of Taxes)]: Okay, so we're gonna talk about the wealth or investment proceeds tax. And I came in like three weeks ago and now it's changed a little bit. It's kind of narrowed a bit. But yeah, we have three, four small things to talk about. Rebecca's going to talk about the implementation timeline. And then we're gonna talk about something I brought up last night with this capital gains exclusion. And then we're gonna go into the types of income, a little bit more detail than what Pat has done. I remember to talk about apportionment because the committee had some discussions about having apportion. People don't really rely on statutory.

[Rebecca Sampson (Deputy Tax Commissioner)]: Great. And thanks for the record. We're done. We're back to Sam Roth, Deputy Tax Commissioner.

[Speaker 0]: Great to see everyone again.

[Rebecca Sampson (Deputy Tax Commissioner)]: I feel like just like similar, similar setup as last time I was in this committee, this session where I have like a couple high level things to say and Jake has all the good leads. But I did, you know, in the, I am not sure about the details of, like, each of the amendments that the crew just went through, but one at least one of the amendments I saw heading into committee today had the timeline of this tax moved up to the next tax year, tax year '26, which was a year earlier than the prior iteration that Jake had commented on. I know.

[Speaker 0]: Which I've been one that is either.

[Sen. Ruth Hardy (Member)]: That was mine.

[Rebecca Sampson (Deputy Tax Commissioner)]: That we Right. Right. So just I just wanted to set expectations here that that timeline for implementing a new tax type would be you know, I have I have the question out to our developers right now, but my assumption is that it's gonna be impossible to achieve for the next tax year. That's, you know, it's in a, you know, in a in a good year, like, for the child care contribution, for example, that took a whole year to implement, we used all all that time for, you know, development in addition to, you know, all the work that goes on just ongoing for running our integrated tax system, but doing a big a big change like this needs some time. So I just wanted to flag that tax year '26 timeline. There's some particular challenges this this calendar year as we, you know, approach the next tax year that are hard to work around. We're doing a major system of date to our integrated tax system v tax. It's kind like going from Windows 11 to Windows whatever happened after 11. So, like, the user experience is still very streamlined. There will be some, you know, new new capabilities for users, but, you know, kind of the goal is for it to to feel mostly the same for taxpayers. But under the hood, the whole coding structure of the system is getting replaced into a different coding language, c sharp. So it's like, it's one of the the more major overhauls that we'll do in the system, and that work's gonna be ongoing through this calendar year. So, you know, the the team has definitely, like, scrolled away resources dedicated to legislative implementation, but there there is a lot going on this year, including some of the classifications work for act 73. That's really, like, non negotiable stuff. So just wanted the expectation set there that the timeline might not be workable. Likely, it's unworkable for tax year '26 for this. And then also, I'm here, my administration had just, like, you know, a a church not a surprise that the governor is not supporting new revenue new revenue styles, raising taxes in general. So it's on the record saying that. I'm sure it's not a big surprise.

[Speaker 0]: We're gonna cut the property taxes.

[Rebecca Sampson (Deputy Tax Commissioner)]: Wait, so proceed with more, more fun facts. Alright. Here we go.

[Jake Feldman (Vermont Department of Taxes)]: Okay. I'd like to expand a little bit on something I brought up three weeks ago. So this committee knows that Vermont has up to 40% capital gains exclusion, and I dug out the statutory purpose of this, and it exists that the exclusion mitigates the impact of one time realizations and progressive tax structure, which is basically what I tried to describe. So it's it's a little bit rare to have a capital special capital gains treatment in a in a state, but Vermont is saying that we basically, hey, you started a business, you grew it, and now you sold it off, and we're not gonna ding you real hard. You know, you spend nine years making $75,000 a year roasting your coffee, and then you make you sell your coffee roasting business for $5,000,000, you're not gonna

[Kirby (Legislative Counsel)]: get a thing. So that's why it exists.

[Jake Feldman (Vermont Department of Taxes)]: And then I'm bringing this up because the wealth proceeds or whatever you call it, is taxed mostly in capital gains. So it's very weird to have an tax system on place where you give it special treatment and then another place where you give it punitive treatment. Right, yeah, and so that is It's a much lower percentage though. It's a much lower percentage.

[Sen. Ruth Hardy (Member)]: It's lower percentage tax. The compensation lower percentage. The tax. This proposed tax, the percent.

[Jake Feldman (Vermont Department of Taxes)]: Is 4%. Yes. Yeah. Right. And our top marginal rate is 8.75. Right. So it's half of what the top marginal rate would be. Right. So you're getting a little bit off the top marginal rate and you're getting a 4% up on the

[Sen. Ruth Hardy (Member)]: Well, if it's excluded from the income tax, it's just it's not taxed. Right?

[Jake Feldman (Vermont Department of Taxes)]: Right. 40% of it.

[Speaker 0]: 40% of it not taxed. 40%, but you'd be being taxed the eight plus four to be from the 60% that is taxed right now. You're excluding 40, but 60% is being taxed at whatever the rate is, and we would be adding 4% to that.

[Jake Feldman (Vermont Department of Taxes)]: Right. But

[Sen. Ruth Hardy (Member)]: I'm saying that the the the part that's not taxed would be taxed. That that's not taxed under the income tax would be taxed at the lower rate. Okay. That's good.

[Jake Feldman (Vermont Department of Taxes)]: A little bit of detail about what's eligible for this 40%. It's the sale of assets that are held longer than three years, except homes, basically, whether it's primary or secondary, that's not eligible. Depreciable personal property is not eligible except farm property or standing timber is eligible. And publicly traded stocks and bonds are not eligible for Vermont 40% exclusion. You get 40% exclusion, but it can't go beyond 40% of your taxable income or $350,000 The $350,000 was brought online maybe five years ago when money was needed. They truncated the capital institutions. Okay, so I'm sorry that there's so much on this slide, it's talking about what are these things in the federal net investment income tax that now the proposal is lining up perfectly with

[Kirby (Legislative Counsel)]: what the federal Before base

[Jake Feldman (Vermont Department of Taxes)]: it was like, I think, what's called an expanded bulk proceeds tax, but now it's just the same base. So capital gains would be 60% of it according to ITEP, which is when we were losing here a few weeks ago, and you guys know what capital gains are. It's basically profits generated from the increase in the value of an asset and it happens at the time of sales. And there's a question from Senator Hardy about what is their federal capital gain exclusion? The answer is no. All short term gains are just taxed like normal income, but longer term gains get preferential rates, and the rates they get depend on your income. If you're high income, you might be getting a 20% rate, but if you're lower income, it actually be lower than that as low as zero. And then I have a column for VT, PLT treatment, says, Sorry, what does it say? It's, oh, okay. So it's the prior slide. It's the first slide. Another type of income here is dividends, which is like, you know, like profits that get distributed to shareholders of businesses mutually. Mutual funds mostly. Mutual funds can also pay dividends. Qualified dividends at the federal level get the same rates as capital gains, and other ordinary dividends are just taxed at normal income. In Vermont, we're already taxing all that stuff. So this is like a double tax effect. You get regular taxes on it, and then if you have it, then

[Kirby (Legislative Counsel)]: you also get extra 4%.

[Jake Feldman (Vermont Department of Taxes)]: As Pat mentioned, rents, royalties, and trusts, this is only taxing any passive business involvement. If you're actively working on the rental business or whatever, that's not included in the federal NIID. It's only passive stuff. Federally that is already fully taxed and in Vermont that's already fully taxed. Interest from bank accounts, bonds, and CDs. Federally, Vermont's already taxed. I actually paid this, my wife and I paid the federal NIIT this year, and I was blown away. Like, why in the world are we paying this? She makes a lot more money than I do, but anyway. The reason is our interest from our VSECU accounts was triggering it. So that was surprising to me we paid $16

[Speaker 0]: I just said that I've got a CD coming due maybe today. I could be in trouble.

[Jake Feldman (Vermont Department of Taxes)]: Yeah, be careful.

[Kirby (Legislative Counsel)]: Don't go

[Jake Feldman (Vermont Department of Taxes)]: over those thresholds.

[Sen. Ruth Hardy (Member)]: Then the Taxes last pay for good things. It's not like No. Taxes pay for our schools, our roads, our infrastructure in our state, our ability to help people get health care. I mean, so that's the thing that gets frustrating is that it's always talked about as like a a bad thing that you have to be careful about or, like, that you're gonna get dinged or punished or negative. And, I mean, you guys are the tax department. You're you're supposed to be, like, you know, like it's a it's a it's a it's, like, part of our civic duty to to be able to help fund things in our state for collective things in our state. And it it gets really frustrating to sit at the table and have everybody just talk about it as this negative thing always. And I know that it can be administered badly or, like, be too much on some some kinds of tax. I'm not saying that that we shouldn't be careful about how we do it and and and fair about how we do it and and effective and efficient and all those words. But we taxes are meant to be part of how we make public goods for everybody,

[Speaker 0]: and I think that gets lost sometimes. And you would be very happy in Canada or Europe because that is the attitude in most of the developed world. This country was born in a tax revolt. Don't think that as a country have a very different attitude towards taxation, and it is preventing us from doing a lot of good things like single payer health care. I I mean,

[Sen. Ruth Hardy (Member)]: I think that part of how we can change the conversation is to be careful about how we talk about it, because we're the leaders, we're the people who are administering the taxes, we're the people who are making the tax policy, and if we talk about it as a negative thing rather than a collective responsibility, that we all need to pay our fair share to get the the combined benefits, the collective good that we that we in this building try to create. And we have healthy discussions about what that is. But if we're constantly, like, demonizing it, then it it makes it really, really hard to make good public policy. So let's move forward.

[Jake Feldman (Vermont Department of Taxes)]: Okay. I'm gonna talk a little bit about apportionment, is kind of like how you attribute where your income is coming from for paying taxes. And for regular personal income tax, apportionment is basically based on where the income is sourced. For state residents, passive income, which is what this is trying to get at, is sourced to their state of residency. So like, I think you guys were talking about some situations of like people who live in Florida, and when they owe the Vermont, this new Vermont house. The answer is mostly no. Passive income goes to where you live. There are a couple exceptions. That's rents is one exception, and if you sell property. Those are the two big In exceptions Vermont. In Like if somebody in Florida sells in Vermont, second homes, whatever, they They pay you.

[Sen. Scott Beck (Member)]: Yep.

[Jake Feldman (Vermont Department of Taxes)]: Or if you have a, on PIT, if you have income from a Vermont business, that also you pay tax for that. And the chair would be familiar with this, but when an out of state owner sells a Vermont property, an amount is actually withheld from the transaction to ensure income tax is paid on that gain. It's called real estate withholding. And if you have this net investment, or whatever you're calling it, well, proceeds tax, that amount in real estate withholding, we have to look at it more, because if there's 4% tax on it in addition to regular property transfer tax, then we have to make sure it's

[Speaker 0]: 4%. Yeah. But

[Jake Feldman (Vermont Department of Taxes)]: it would be funny because they'd have to be really high income and, I don't know, all these traditions. But anyway, that would need another And then talking to Will Baker who's general counsel, we were wondering what if a Vermont resident have rental rental income from another state that has already taxed it? Can they get it for the taxes they paid in that state on this? And we were not quite sure of the answer. We're quite honest. A 100%

[Speaker 0]: of the cost.

[Sen. Ruth Hardy (Member)]: The income that was made for rental would be taxed here. If it's a rental property that somebody gets income from here, they would be taxed here.

[Patrick Dugan (Joint Fiscal Office)]: Yep.

[Sen. Ruth Hardy (Member)]: Why would they be taxed in another state for income that's created in Vermont?

[Jake Feldman (Vermont Department of Taxes)]: If it's a Vermont resident, but has rent coming from California, that that would get you know, maybe part of this new tax. And so Will's question is, like, can they claim another state tax credit for it? Because California has already taxed it. But,

[Sen. Ruth Hardy (Member)]: I'm confused. It's if it works in one direction, why doesn't it work in the

[Rebecca Sampson (Deputy Tax Commissioner)]: other direction?

[Sen. Ruth Hardy (Member)]: Like, if the income from a rent here in Vermont is taxed in Vermont, wouldn't the and it would not be taxed in another state, wouldn't the rental income that's earned in California be taxed in California and not here?

[Jake Feldman (Vermont Department of Taxes)]: Yeah. Yeah, no. Okay. California would be taxing it. But so with this wealth proceeds tax,

[Speaker 0]: maybe we're not You're getting the income tax. Yeah. I'm confused. Oh, maybe Kirby knows.

[Kirby (Legislative Counsel)]: It will Kirby doesn't know. Kirby knows the issue. Just what we have now for the language is the reason why it's unknown is we do have the provision that brings in all of the administration from the income tax. That kind of raises the question, if otherwise it's silent, silent means no, we don't get credit because we're not know, unless we expressly are creating a credit for it, then it would be assumed that we're not, but we are bringing in the administrative provisions, and part of the administrative provisions under our income tax are to have a credit for taxes paid to another state. I think the takeaway here is maybe it's a policy decision and it's something that you could deliberately put into the language of whether you want to do that or not.

[Sen. Ruth Hardy (Member)]: Under current law for the income tax, there is a credit for taxes paid in another state? Yeah. Okay. Yeah. So, presumably the administration, if we were to do this, the administration, if the administration of this new tax would be easier to just stick with what we already do for income tax. Would that true or not, or doesn't that matter?

[Rebecca Sampson (Deputy Tax Commissioner)]: I think this is a policy decision. It's like, you know, if we want this, if we, yeah, we want the, someone in this non resident situation to have, or sorry, a a resident for Monter that's having a tax liability in another state that's on the same income. You know, we've already discussed how, like, these same dollars will be taxed under our personal income tax and then also under this loan proceeds tax. So they will be able to claim we call it an Oscar or other state tax credit against the income tax liability. And, like, should they also, you know, if that, like, California tax bill is big enough and their credit is big enough, should we allow it to extend to cover some of this, you know, net, well, for toothpast or, you name it. Right. VIB, well.

[Sen. Ruth Hardy (Member)]: VIB, oh, of course, oh my god. I

[Rebecca Sampson (Deputy Tax Commissioner)]: forgot to acknowledge our parent that

[Speaker 0]: is, we

[Jake Feldman (Vermont Department of Taxes)]: like that name. If this doesn't happen, we should still use that.

[Sen. Ruth Hardy (Member)]: Yeah, I'll come up with something else.

[Rebecca Sampson (Deputy Tax Commissioner)]: Okay. And I'll point out, I threw this in because I am always referencing this document. There's a link to our personal income tax residency and apportionment, just like one on one document that just like I find it helpful just to, like, review. Like, this is how we deal with, you know, when you're a resident, how your income is taxed versus when you're a nonresident or part of your resident, and, you know, kinda just goes through the the basics of, like, when you are a resident and a 100% of your income is is technically taxable in Vermont, how we kinda, you know, make you whole or less than whole is using other state tax credits to make sure you're getting, you know, credit for taxes that are paid to other states. Make sure you're not getting double taxed. Whereas when you're a non resident, you use an apportionment schedule where you're, like, really creating a percentage of how much of of each type of income is really, you know, per month, tax based versus everywhere else. Sad that's a resource. I think that's under our names today too.

[Speaker 0]: Excuse me. Is that it Okay. For Randy, I know Senator Hardy has judicial retention.

[Sen. Ruth Hardy (Member)]: Right? Yeah. Well, yeah, starting at five. Oh, at five. Yeah. I'm gonna

[Speaker 0]: it to five. They moved it

[Sen. Ruth Hardy (Member)]: to five. Yeah. That's what I just sent you.

[Speaker 0]: No So we can we can continue. So we have to get the implementation. We have to do it in '27. '26 is this July. We can't

[Jake Feldman (Vermont Department of Taxes)]: We'll be retro.

[Sen. Ruth Hardy (Member)]: We'll be retro. It retro. And that was to try to align it with the the Yeah. The education fund stuff.

[Jake Feldman (Vermont Department of Taxes)]: Yeah. And so like if it Yeah. I mean, Rebecca explained the challenges, but from a taxpayer perspective to like, you know, they wouldn't know this is coming. And so you'd have to do like a temporary suspension of penalties for people who have underpaid. Because they, because when you're making, if you're a person making estimated payments, you don't really know that that's a

[Sen. Ruth Hardy (Member)]: Yeah, no, I understand that. I was just trying to align it with the education fund stuff. Yeah.

[Speaker 0]: Okay. Now

[Sen. Randy Brock (Member)]: I guess there's also a question of fairness. If you create a tax that becomes effective midyear that you didn't know about, you weren't able to prepare for it or plan for it or put in mitigating circumstances for it. And I just wonder about the fairness of doing that.

[Speaker 0]: Okay. Can we read that we are that we that we can't start it this July. We agree. We need to give, just like we did with the bill on the floor today, some time for people to know it's coming and to perhaps make decisions based on that knowledge. Have three proposals before us. I think yeah. We will raise it with with stride of the five. We can stick with everything as it is and adjust the timelines. And then, senator Chittenden, you wanted in I'm fine. What's what's in your I mean, if we take out gross receipts and put the other things like the salt workarounds, say, because

[Sen. Thomas Chittenden (Vice Chair)]: receipt. Yeah.

[Speaker 0]: Take out the capital gains.

[Sen. Thomas Chittenden (Vice Chair)]: And that your thresholds, the 500 k Ah. Would raise more money.

[Speaker 0]: Okay. If we could do that, would that work for you? I'll let you all think about it.

[Sen. Scott Beck (Member)]: It would

[Sen. Thomas Chittenden (Vice Chair)]: be the flat 500 across the board, or did you have 5 hundreds for joint filers that have different amount for

[Speaker 0]: I think we would scale

[Sen. Thomas Chittenden (Vice Chair)]: it. Right? I I dropped it. It's 500 per everyone across the board. But the original bill had four tiers, which is a little more consistent with our current state and federal tax code.

[Speaker 0]: It's filing jointly, filing singly, and if we can do that, adjust the numbers. You have three tiers. If that would work.

[Sen. Thomas Chittenden (Vice Chair)]: Is there a path to gain Republican support on any combination of this to make it even more feasible, but this might get passed into law. I I'm for salt workaround.

[Jake Feldman (Vermont Department of Taxes)]: Get on board with salt.

[Speaker 0]: The salt workaround would do it?

[Sen. Ruth Hardy (Member)]: I've always been supportive. But not in combination with the the other the investment proceeds tax.

[Sen. Scott Beck (Member)]: At this point, I'm good with salt. The rest of it, Do we I mean, just kinda we are attention. Like, we're talking about dipping our fingers into income tax effectively. Passive. Passive impact. Yes. For the education part. Which has a spending problem. The university notes. Okay. Which has a spending cost that we created. These people across the hall who were facing much more difficult spending decisions than the education fund. My opinion. How are they going to look at this? We're taking that tax capacity for the education fund. It's taken away from the capacity taken away from the general fund. Plus they are being asked to put in $10,000,000 to

[Speaker 0]: buy down the tax.

[Sen. Scott Beck (Member)]: It's not 105 I mean

[Sen. Ruth Hardy (Member)]: To buy down the property tax? Well, instead of doing that, this can replace that. So they can have that 105,000,000 Well, it's

[Speaker 0]: not gonna replace it this year.

[Sen. Ruth Hardy (Member)]: It well, that's why I was trying to align it with this year. So, I mean, this this if you combine it with the, you know, the wealth investment income tax, the VIP tax, and the spending threshold reduction that reduces property taxes and helps us to not have to I mean, I don't think we should buy it down anyway. It's part of what got us into this problem. But then, you know, it it decreases the the the desire or the necessity in some people's mind to to buy down. Right. So they can they can keep that money. That that's the thing. Like, thinking about this in the package, like, how do we get a combination of of decreases in spending through the spending threshold and increases in revenue and and and pay for some of the things that we put on the education fund over the last few years that didn't create new revenue sources for. And those are driving property taxes. We put some days out just as much if not more than what's happening in the schools.

[Sen. Scott Beck (Member)]: And then I say we. But we're talking about ongoing revenue here. Not one time. The 105 is one time revenue. This is ongoing. Revenue.

[Kirby (Legislative Counsel)]: Your percent of sales is ongoing, so that's why

[Sen. Thomas Chittenden (Vice Chair)]: I thought it'd a rationing.

[Sen. Scott Beck (Member)]: No, I got you on the line. Like, I get it. But, but we are talking about sending ongoing revenue out of a bucket that typically funds the general fund and putting it in the education.

[Sen. Ruth Hardy (Member)]: It's not a bucket that funds the general fund because it doesn't exist at this point.

[Sen. Scott Beck (Member)]: Well, just in general income.

[Speaker 0]: The tax on income. Tax money. It's a tax on income.

[Sen. Scott Beck (Member)]: But I I get your point. You know? I mean, it's It's

[Sen. Ruth Hardy (Member)]: a new tax.

[Sen. Scott Beck (Member)]: It's a new tax. I get it.

[Speaker 0]: But it is a tax. I mean

[Sen. Scott Beck (Member)]: But it yeah.

[Sen. Ruth Hardy (Member)]: And just in a public forum in the in the one of the most conservative towns I represent just last week, somebody stood up and was like, don't you change the funding of schools to income? And I'm like, well, okay, let me tell you the whole history of this. It's a long story. Come to the state house conversation. But, I mean, there are people who think we should be putting more income into the ad fund. This is just a little dipping of the toe into that. And so, it's kind of checking a lot of boxes, Scott. On. What if

[Speaker 0]: we end up cutting back fill food stamps or section eight housing,

[Sen. Ruth Hardy (Member)]: which is in danger. Agreed. I agree. And putting five into 100,000,000 the education fund doesn't make any sense, so we shouldn't have done it last year either.

[Speaker 0]: Right. Okay. Oh, Senator, you, I count her. Senator, you.

[Sen. Martine Larocque Gulick (Member)]: The voice from the netherworld. Yes.

[Speaker 0]: That gives me a disadvantage here.

[Sen. Martine Larocque Gulick (Member)]: I've been enjoying listening to you all. According to the, I have to just quote this, the Center on Budget and Policy Priorities, It's a think tank that's nonpartisan. They say just in Vermont, the HR one law is expected to save households with incomes in the top 1%, nearly $60,000 on average each year and over 500 times more than the expected annual savings for households with incomes in the bottom 20% and about 37 times as much as the households with incomes in the middle 20%. So overall, more than 70% of all the benefits, $730,000,000 in 2026 from this tax proposal are directed to Vermonters with incomes in the top 20%. So I hear that there's deep concern for rich people. I get that. And I think this is an opportunity to fund some of the things that we need to fund in light of other cuts. And I agree with Senator Hardy. We also need to start being serious about spending and Senator Beck, hear you and I agree with you, but it's not an either or, know, we could do both. So thank you for listening and I appreciate all of the amendments. They're really great.

[Speaker 0]: Okay. Which one can you support, Senator Gulick?

[Sen. Martine Larocque Gulick (Member)]: I can support all three. And if you want me to put them in order of my support, I would go with Hardy, Cummings, Chittenden.

[Jake Feldman (Vermont Department of Taxes)]: Makes sense. I don't if we had a casino

[Speaker 0]: to this.

[Jake Feldman (Vermont Department of Taxes)]: Wow. It's Then we can ask a conversation.

[Sen. Ruth Hardy (Member)]: Mattos wants a casino.

[Jake Feldman (Vermont Department of Taxes)]: There you go. That's right.

[Kirby (Legislative Counsel)]: There's a bill out there.

[Jake Feldman (Vermont Department of Taxes)]: That goes to the Edmund. Oh.

[Sen. Ruth Hardy (Member)]: The Reddick. Is it gonna is it gonna be the Milton Casino? It's gonna be in your town.

[Sen. Thomas Chittenden (Vice Chair)]: There's two.

[Sen. Scott Beck (Member)]: One in Saint John's.

[Speaker 0]: We're getting lost. Are getting lost.

[Sen. Ruth Hardy (Member)]: I think it's important that we can still laugh together.

[Speaker 0]: We will be the last week that it's important and I'll go by again next week we will be together. Yes.

[Sen. Thomas Chittenden (Vice Chair)]: Can I ask a question of Kirby regarding the capital gains exclusion in the

[Jake Feldman (Vermont Department of Taxes)]: Chittenden Amenden?

[Sen. Thomas Chittenden (Vice Chair)]: Can you explain and tell me how much it's calibrated with what Jake presented with how we what we're currently exempting that 40%? Is it exactly aligned?

[Kirby (Legislative Counsel)]: No. As as Jake showed, it's a percentage of capital gains up to a cap. The way we drafted yours was because it was a little bit problematic identifying things, I actually drafted it to specify all of the types of income that falls under the federal NIIT, but leaving out capital gains system is the way I did that. But the point was to leave out capital gains a 100%.

[Sen. Thomas Chittenden (Vice Chair)]: And Jake then, if a form of this moves forward, do you see any reason we should try to dissect types of capital gains to further align with our other tax code policies?

[Kirby (Legislative Counsel)]: Whereas all capital gains are used in Nevada. Yes.

[Jake Feldman (Vermont Department of Taxes)]: Minnesota took out the farm sales. Right? I mean, to me, just speaking, like, intuitively, personal income tax, there's certain capital gains that get preferential treatment, those are the ones that you'd also want to exclude in this status, right? Like if you're saying that those are more sympathetic gates, then you'd want to carve them out,

[Kirby (Legislative Counsel)]: I think.

[Speaker 0]: Okay. And we run numbers without staying up all night. For Dewey, the capital gains exclusion to mean to put the capital Vermont's capital gains exclusion in your bill. Can and let's try the Chittenden bill to start with.

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

[Speaker 0]: You're excluding all capital gains. If we only exclude what if Vermont excludes

[Sen. Thomas Chittenden (Vice Chair)]: Is there a different gap there? Yeah. Okay.

[Sen. Christopher Mattos (Clerk)]: Yeah. So you get the 40% exclusion multiply the 4%.

[Kirby (Legislative Counsel)]: Would you would you allow do you want us to take the income tax exclusion and allow a person to use it for either one? Is that what I'm hearing?

[Speaker 0]: Yeah. I think so. Wait. Wait. Either one or Both.

[Sen. Ruth Hardy (Member)]: I mean, because either one I mean, people are obviously gonna take the one for personal income tax because they're the tax rate is higher than for the Of course. Yeah. That's that's the point. The 8% is higher than the the 4%. Yeah. But it's

[Speaker 0]: the value of the or it cuts the value of the state exclusion.

[Sen. Ruth Hardy (Member)]: But there also is a a cap, the $350,000 cap on that. So seems to me that

[Kirby (Legislative Counsel)]: If you set the threshold at 500, I would not the math person talking here, but it seems like it would overlap enough where maybe the exclusion wouldn't be used so much, Looking at math people now.

[Sen. Thomas Chittenden (Vice Chair)]: Kirby, in the underlying bill, where did those those original threshold amounts come from? What inspired those?

[Kirby (Legislative Counsel)]: That's the federal. Those are the.

[Speaker 0]: And they are in both proposals one and two. The one that the the one that was kind thing.

[Kirby (Legislative Counsel)]: As introduced and the Hardy version are the two that use the federal thresholds. So they're coming to use 500,000. Right. I

[Speaker 0]: was trying to make it a truly wealth tax.

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

[Sen. Thomas Chittenden (Vice Chair)]: So I see two areas that we could tweak if we're we're gonna move something forward. I I would like to know Senator Mattos and Senator Brock have any comments on this just to see if you see pathways for feasibility. We could tweak the 4%. I mean, Minnesota did 1%, but if we did lower it and and so it wasn't much of a hit and smoothed out or could be 1% at a lower amount and then 4% up at the middle of a higher thresholds if you're looking to gain more revenue. So we're bringing it down to your 500,000 is an option, but we even have to bring a whole 4% down. Everybody likes a complex tax code. Right? Here's yeah. So I I'm just saying that's another option. Is there pathways where you can support versions

[Sen. Christopher Mattos (Clerk)]: of this? So what what I can generally go back to is that, depending on what site you looked at, tax foundation, whoever it is, Vermont will rank somewhere in the top 10% of highest tax burdens in The US. And what I come back to is we have such a small population of people that this would have paid to it. Rough numbers off of 2022 data from income taxes, it would probably take around 40 people to leave to start making a negative dent in what? Senator Chittenden's amendment's trying to raise that 10,000,000. That doesn't include any kind of business loss, anything like that. That's the true

[Speaker 0]: reason of past.

[Sen. Ruth Hardy (Member)]: I just wanna remind you though that the way that at least mine is structured, I think synergents to a degree is that it's raising one tax to lower another tax. So

[Sen. Thomas Chittenden (Vice Chair)]: No. I know. And

[Sen. Ruth Hardy (Member)]: and the the tax that it's lowering is the tax that everybody is very concerned about right now and that we're hearing from constituents about is the property tax. So it would lower the property tax.

[Speaker 0]: A

[Jake Feldman (Vermont Department of Taxes)]: $10,000,000 on 2.5 bills.

[Sen. Christopher Mattos (Clerk)]: And that's

[Speaker 0]: and that he is the witness. So

[Jake Feldman (Vermont Department of Taxes)]: we I gotta go pick up my parents.

[Sen. Christopher Mattos (Clerk)]: Yeah, gotta go get my kids.

[Jake Feldman (Vermont Department of Taxes)]: I want to just that that I think that taking part of the the personal income tax and somehow getting it over to the education fund is going to be quite complicated. Yeah. Because like in personal income taxes, this is going be wrapped up with all these credits, and these other things, so how do you know how much is this tax? It would need to really stand alone like entirely if you wanted to isolate.

[Sen. Thomas Chittenden (Vice Chair)]: I'll give you IP tax. I

[Speaker 0]: have concerns about taking some section of an income tax and putting it into education because that sets a precedent. And I know what they're we're gonna raise tax money. I think it needs to be assessed across the hall with all the other needs that are out there.

[Sen. Scott Beck (Member)]: That's an option of defund. Because we

[Speaker 0]: don't know what else is hurting.

[Sen. Scott Beck (Member)]: I

[Speaker 0]: know they're struggling, and I know the Ed Fund is struggling. Everybody's struggling, and it needs to be rationally portioned. So I think tomorrow

[Jake Feldman (Vermont Department of Taxes)]: But we have one week. It's good.

[Speaker 0]: Something to enlighten us tomorrow.

[Sen. Scott Beck (Member)]: Probably would. And I'm not

[Speaker 0]: sure in what way, but what would this do to the end fund? Uh-huh. What you've been talking about thus far? Yeah. Yeah,

[Sen. Ruth Hardy (Member)]: we can we can talk about that. I think it would ultimately, it would depend Julie Rector or Diane about ultimately the big picture in tuition is true that revenue, all else equal revenue going into the education fund resource other than property taxes will then mean that that less needs to be raised on property taxes. The amount that needs to be raised less on property taxes will depend on how much revenue is coming into

[Speaker 0]: the education fund. But if yeah, if we put in any one of these numbers and school spending goes up

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

[Sen. Ruth Hardy (Member)]: Right, so in that instance, the property taxes would not increase by the same time as

[Speaker 0]: I would caution 70. And

[Sen. Scott Beck (Member)]: that's where I think this all, you know, unless we can figure out a different spending trajectory for the education fund, then we have no we can't we can't have any confidence that this money's actually gonna help taxpayers. So maybe it's, you know, it is part of a you know, like we did back in 2018, a bigger reorganization, that includes, that different spending trajectory, which I know we have an accent in free, but that hasn't quite made it to the finish line yet.

[Speaker 0]: Yeah. And I don't wanna give the impression that we've found a huge amount of money in in income tax that's going in and give the impression that we're gonna raise you know, if we go with Senator Chittenden, know, none of these in millions is going to make up for what we've been moving over to buy down the present property tax.

[Sen. Scott Beck (Member)]: Well, even with Wayfair, we got nine figures.

[Speaker 0]: And we

[Sen. Ruth Hardy (Member)]: And it did help the problem. Well, it this problem is multifaceted, and and some of it we have been trying to work on, but the that so much of it is just inflation, health care, capital costs, and student needs. Those are the four things that we we heard over and over again.

[Sen. Randy Brock (Member)]: Material things, but there's also the other issue of perception. And what we do with respect to taxes and the messaging that comes out after we pass a tax bill is important in terms of public perception and public reaction to that perception, and what stays in the public's mind over time. In particular, when we focus on the wealthy, we're focused on that population that gives us the greatest bang for the buck in terms of the currency for the individual. It's a population that we actually want to attract rather than chase away. And we're

[Speaker 0]: not doing that at this point. We need to attract them when they're making $203,100,000 dollars a couple filing jointly. So when they become millionaires, they stay.

[Sen. Randy Brock (Member)]: We don't want to perceive ourselves as being such an outlier, which we sometimes are. We are right now in terms of our taxation of people and income taxes compared to other states.

[Sen. Thomas Chittenden (Vice Chair)]: I agree completely to your perception point, and that's why I think Minnesota raised the million dollar tax on net investment income revenues to fund the universal meals, and that's also where I feel the perception

[Sen. Ruth Hardy (Member)]: That's exactly what the the proposal that I put forward would do. And I think and it would lower property taxes, and it would fund two things that we put on the education fund recently without a without a revenue source other than property taxes. And this would provide a revenue source for those things. And and it would also lower the excess spending threshold.

[Sen. Scott Beck (Member)]: True. Unless it just gets sped up. That's been the history of the education.

[Sen. Ruth Hardy (Member)]: With the excess excess.

[Sen. Scott Beck (Member)]: Excess. It's been

[Speaker 0]: a really long day. I'm that line on the graph.

[Sen. Ruth Hardy (Member)]: I think it's proven to be helpful. School districts do school boards do Okay. Mind the excess spending threshold. I know for sure that they do that. And and so it would have an impact. But maybe we need to take a break and talk about some more tomorrow.

[Speaker 0]: I I think I think so. Tomorrow is our last day. My goal is to get some version of two twenty out of here. Sure.

[Sen. Ruth Hardy (Member)]: It's gonna be bad. It's gonna some weak these things.

[Speaker 0]: So this one, if we can't settle this one, there are several tax bills headed our way. And I'm gonna just say,

[Sen. Ruth Hardy (Member)]: madam chair, two twenty is gonna be hard for me unless we combine it with some of the things we talked about today. Okay. So that's what I was trying to do with my amendment, and I'm not gonna just, you know, wrench down things for schools unless we have other I have at least three members for whom this bill I hear that. I hear that. That. If they can put down something, so Yeah.

[Speaker 0]: So we will see where we get out of here tomorrow. Everybody take a break. We've been on this for a couple hours, and we'll come back tomorrow. We will see if we can cash this out and we can stay as long