SUBJECT: Legislature’s Tax Plan Impacts Vermont Seniors
Over 225 Towns are Adversely Affected Compared to Governor’s Plan
Montpelier, Vt. – In the budget recently passed by lawmakers, the Legislature is seeking dramatic changes to the state income tax system – changes that will negatively affect Vermont seniors, small businesses and farms.
Here are the facts:
The Legislature’s budget limited the capital gains exemption to the first $5,000 in capital gains income but did not provide protection for those over age 65 and for farmers and woodlot owners. They also eliminated the deduction for paid state income taxes.
The combined tax hit as a result of legislative changes in capital gains exclusion (+$16.2 million) and limiting deductions (+$15.5 million) is $31.7 million, but their proposal only drops marginal tax rates by $22.4 million – with the additional $9.3 million siphoned off the top as a tax increase going to General Fund spending. This a $9.3 million increase in income taxes on Vermonters.
In addition to negatively affecting small businesses and farms, the Legislature’s tax proposal disproportionately impacts Vermonters over age 65 as compared to the Governor’s proposal. The attached town by town comparison shows that in over 225 towns, Vermont seniors fare worse under the Legislature’s plan as compared to the Governor’s approach. In addition, the vast majority of towns fare worse under the Legislative plan for all income tax fliers.
“Without protections for Vermont’s seniors, the Legislature’s tax plan will leave thousands of older Vermonters paying more in income taxes in nearly every town in the state. My proposal lowers taxes for seniors,” said Governor Jim Douglas. “These are Vermont seniors who have worked hard their whole life to build a nest egg for the golden years. Any changes to our tax structure must protect older Vermonters.”
“The Legislature needs to come back to the table and find a compromise that protects seniors, farmers and small businesses,” continued Douglas. “We must not make it harder for employers to create jobs and for our economy to grow. We must reach agreement on a budget that invests in job creation without raising taxes that will hinder a speedy economic recovery.”
In 2008, Governor Douglas submitted to the Legislature a plan to reform the treatment of capital gains under Vermont’s income tax system. The Governor’s approach called for taxing capital gains at the same rates as wages and other earned income while protecting the investment income of those over age 65 as well as farmers and loggers who take capital gains as a course of business.
The Governor’s proposal also had the expressed purpose of plowing every dollar raised through eliminating the inequity of unearned income into reducing Vermont’s very high marginal rates. The Governor stands firm against repeated calls from Legislators to make the tax changes but take the money for increased government spending.
In his alternative budget approach released last week, the Governor renewed his idea to eliminate Vermont’s capital gains exemption except for those over 65 and farmers and woodlot owners. The Governor’s proposal excludes the first $2,500 of capital gains from any tax. This change would allow us to lower income taxes for Vermonters by $13.4 million. None of the money would go to fund increased spending in the budget.
###