The administration of Gov. Phil Scott unveiled a proposed income tax overhaul Friday that it says will protect middle-class Vermonters from an otherwise significant tax hike in 2018.
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President Donald Trump billed his federal tax overhaul as a middle class tax cut, but the legislation is actually going to increase the amount that Vermonters pay in state income taxes.
READ THE DETAILS OF GOV. SCOTT'S PLAN
That’s because Vermont’s income tax code is tied to the federal system more closely than in other states. And alterations at the federal level — namely the elimination of the personal exemption — means Vermonters will, on the whole, pay $30 million more in state income taxes this year as a result of the federal overhaul.
At a media briefing Friday, Commissioner of Taxes Kaj Samsom walked reporters through the administration’s plan to insulate Vermonters from the unintentional tax hike.
“The primary goal, and we think we’ve achieved it here, is to hold harmless as many Vermonters as possible,” Samsom says.
SEE WHAT HAPPENS TO VERMONT TAXPAYERS, IF STATE DOES NOTHING
But Samsom says the administration is taking advantage of the tax code rewrite to improve the system overall.
“This will greatly simplify Vermont’s tax calculation,” Samsom says. “It’s going to lower rates, better incentivize charitable giving, increase the stability and resiliency of our state revenues and tax system.”
The Tax Cuts and Jobs Act of 2017 eliminated entirely the personal exemption, which means, according to Samsom, that “something that used to be worth $4,150 of deduction per dependent is now worth zero.”
Samsom says the administration’s plan proposes to restore the personal exemption at the state level — $4,000 for each dependent. It also creates a new income deduction for Vermonters — $6,000 for single filers, $12,000 for joint filers, and $9,000 for heads of household.
READ GOV. SCOTT'S PLAN PROPOSAL
The plan has another big change - instead of assessing state income taxes on “taxable income,” it would peg filers’ liabilities to adjusted gross income. Samsom says that would broaden the tax base - adjusted gross income is a larger number than taxable income. And Samsom says that would allow Vermont to lower its marginal tax rates, which are among the highest in the nation while raising the same amount of money.
Samsom says there will still be “winners and losers” in the proposed overhaul. But he says Vermonters will experience far less volatility under the proposed plan than if Vermont sticks with the status quo.
Calais Rep. Janet Ancel, chairwoman of the House Committee on Ways Means, says the general contours of the proposal sound promising. She says she’s long championed moving to adjusted gross income in particular.
But with any major tax overhaul, Ancel says the devil’s always in the details.
“Ultimately we want to be sure that end result is fair. And we want to be sure that the tax rates are appropriately adjusted, if they get adjusted,” Ancel says.
The administration will present its proposed tax plan to legislative committees next week.
