Senate committee considers exempting military pensions to help recruit veterans to Vermont

During a Senate Economic Development, Housing & General Affairs committee hearing, Department of Labor officials described how exempting military retirement pay from Vermont income tax could make the state more competitive in recruiting veterans and their families.

The department said the proposal would complement earlier state efforts to streamline professional licensing for military spouses and to recognize military credentials, while leveraging federal programs such as the Jobs for Veterans State Grant, SkillBridge and GI Bill benefits.

"I am writing to advocate against taxing retired military pensions. I resided in Upstate New York, and I've always loved Vermont. I would love to retire there, but I cannot when other states offer tax free pensions," Jay Ramsey, director of workforce development, read from an anecdotal submission the department had received. "If Vermont removes the pension tax for active duty military, I would move there. Seems like a win win. Please try to keep pushing for that." He attributed the note to an out‑of‑state writer who said the tax treatment affected their retirement decision.

Why it matters: department staff told the committee the pension exemption could be the "last puzzle piece" in a broader recruitment package that already includes licensing recognition measures (Act 119 and Act 152) intended to ease transitions from military to civilian careers. Officials said those earlier laws and existing federal programs give Vermont structural advantages, but that other states that fully exempt military pensions appear more attractive on national maps used by transitioning service members.

What the committee heard: Kendall Smith, deputy commissioner of the Vermont Department of Labor, and Ramsey reviewed federal and state supports for veterans. They said the Jobs for Veterans State Grant (JVSG) funds about 4.5 full‑time equivalent staff across the state and that "last year... we served for the whole year around 400 individuals and around a hundred businesses," though staffing turnover has reduced capacity this year. The department also described SkillBridge—a Department of Defense program that places service members with Vermont employers during their final service months—and GI Bill benefits that can help veterans enroll in apprenticeships and other training.

Officials showed a national map from the Military Officers Association that highlights states that do not tax military pensions; Vermont was described as an outlier compared with neighboring states despite a recent partial exemption passed in the prior session. Ramsey said the map and other recruitment evidence indicate Vermont lags peer states on pension tax treatment.

Limits and funding: committee members were reminded that the current bill does not include dedicated recruitment funding. Ramsey said, "Deliberately, we did not put any money in this bill for recruitment. We felt it was important... to get the program up." He and other witnesses cautioned that marketing and outreach capacity is limited because the state tourism and marketing budgets have been cut; that reduction, they said, could impede any targeted campaign to attract veterans.

Other context: the department noted prior state efforts to ease licensing for military spouses and to recognize military credentials under Act 119 and Act 152, and it suggested those reforms be bundled with any pension exemption for promotion to transitioning service members. Committee members discussed a separate House bill that would cap the exemption for higher incomes; one senator warned a $125,000 cap with phase‑out beginning there could reduce the incentive for some two‑income military households.

Discussion vs. decision: the hearing was a fact‑finding discussion; no formal committee action or vote was recorded during the session. Ramsey and Smith outlined programs and tradeoffs and identified follow‑up items—chiefly outreach strategy and potential capacity needs for veteran services—rather than a committee decision.

Looking ahead: department staff said implementation planning should include partners such as the Office of Professional Regulation, the Agency of Commerce and Community Development's Grow grants and other state and federal programs. Committee members indicated the finance committee will address revenue and phase‑out questions if the exemption advances.