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Experts say homestead exemption risks preserving regressivity; Tax Department recommends $400,000 cap
Summary
Witnesses debated proposed changes to Vermont's homestead exemption. Public Assets Institute warned the plan would preserve regressivity and create winners and losers; the Tax Department recommended a $400,000 cap on the exemption and highlighted administrative advantages and timing benefits.
Stephanie Yu of the Public Assets Institute told the committee that a proposed homestead exemption would perpetuate the regressivity of Vermont's current property-based system and would produce different bills for homeowners with the same income but different home values. "Because higher income taxpayers are essentially held harmless under this plan, it's really just redistributing the taxes among Vermonters under $115,000 in household income and creating different winners and losers," Yu said.
Jake Feldman of the Tax Department recommended limiting an exemption to a $400,000 up‑to‑limit, saying the department's modeling shows that a $400,000 cap would cost about $35,000,000 compared with an unlimited exemption modeled at roughly $45,000,000. "In JFO's presentation, the $400,000 limit would cost $35,000,000 compared to an unlimited exemption, which would be ... $45,000,000," Feldman said.
Why it matters: lawmakers are weighing a new homestead exemption as part of broader education finance reform. Witnesses said a switch that leaves higher-income homeowners held harmless while shifting relief to owners below an income cutoff would not resolve underlying fairness concerns, and could increase variability in tax bills among households with the same income.
Yu showed charts the committee that illustrated a persistent peak of tax burden in the middle income bands under both the current hybrid system and the proposed exemption. She argued an exemption would still "punish" homeowners whose primary home is their main asset and would not ask higher-income households to contribute more.
Feldman told the committee the exemption would improve timeliness and transparency because it would be tied to current-year property values rather than a lagged credit. He also recommended phasing in cuts to reduce abrupt "cliffs" in liability near thresholds such as the current $90,000 income cliff. "With an exemption, it won't be lagged. It's going to be sensitive to the property value and the rates in the coming years," Feldman said.
Representative Kimball and other members asked about distributional effects and whether the tax department had a view on the appropriate level of credit. Commissioner Dailey asked where the committee could find the $35,000,000 figure Feldman cited. Feldman and other tax staff said the fiscal estimates come from modeling available to the committee and from JFO analysis.
Jeff Fannin, speaking earlier in the hearing on education funding, urged broader health-care cost reforms and referenced a Green Mountain Care Board–commissioned Oliver Wyman study and other analyses, saying reference‑based pricing could reduce property taxes by an estimated $52,000,000 in 2026 if implemented.
No formal decisions were made at the hearing; committee members discussed phasing and administrative implementation and asked the tax department for follow-up material and modeling.
