Committee hears case to exempt military retirement and survivor benefits to recruit retirees to Vermont

At a Senate Economic Development, Housing and General Affairs committee hearing, business owners, veterans’ family members and economic advocates urged lawmakers to exempt military retirement pay and Survivor Benefit Plan (SBP) payments from Vermont income tax as a tool to recruit and retain military retirees and their families.

Brian Carpenter, a retired brigadier general and owner and general manager of Champlain Valley Equipment, told the committee that many military retirees seek second careers in the trades or start small businesses and that Vermont is at a competitive disadvantage without a retirement-income tax exemption. "Without the carrot of, the retirement exemption, I just don't see us being an attractive place for retirees to move," Carpenter said. He noted the average age of military retirees is about 47 and cited Fort Drum, N.Y., as a nearby troop concentration with services retirees might use.

June Heston, a surviving spouse of a Vermont National Guard brigadier general, described financial pressure on survivors and families and urged lawmakers to consider the moral as well as the economic case. "We owe it to them to honor this commitment," Heston said, noting that survivor benefits can replace roughly 55% of a service member's pension and that survivors often make location decisions for financial reasons.

Meghan Sullivan, vice president of government affairs for the Vermont Chamber of Commerce, framed the proposal as an economic-development measure. Sullivan cited modeling approaches used in other states — including a South Carolina REMI study provided to the committee — and said an exemption can produce a net fiscal benefit if it attracts enough retirees. "Passing the exemption is critical, but alone is not necessarily a sufficient recruitment strategy," Sullivan said, urging active outreach and complementary workforce supports.

Patrick from the Joint Fiscal Office presented the office’s fiscal estimates and demographic context. He said Vermont has roughly 3,900 military retirees on file and about 3,600 receiving benefits, with total annual pension benefit income of roughly $90 million and an average benefit near $25,000 per retiree. The Joint Fiscal Office provided a consensus estimate that an exemption as proposed would result in about $3.9 million in foregone personal income tax revenue annually, a figure that would change if more retirees moved to the state.

Committee members pressed witnesses on practical matters such as how taxpayers currently claim the existing Social Security/military exemption worksheet, federal reporting from the Department of Defense, and the difference between veterans (a broader group) and military retirees (those generally eligible for a pension). The chair indicated the measure will be sent to the Senate Finance Committee for the tax-policy portion of the proposal.

Why this matters: Witnesses said military retirees bring federally funded income, workforce participation in high-demand fields (health care, skilled trades, law enforcement, logistics), entrepreneurship and volunteerism. Proponents framed the exemption as an investment to address Vermont’s demographic decline among working-age veterans and to fill critical labor shortages.

Next steps: Committee members did not take a formal vote at the hearing. Lawmakers said they plan to forward tax-related elements of the proposal to the Senate Finance Committee for fiscal review and further consideration.