Committee reviews H.34 amendment to exempt U.S. military retirement, targeting recruitment of retirees for Vermont workforce

A proposed amendment to H.34 to fully exempt U.S. military retirement from Vermont taxable income and to direct annual reporting on military-targeted recruitment drew extended committee discussion on April 22.

Rick Segal of the Office of Legislative Council introduced the amendment’s intent and scope and deferred technical tax questions to legislative counsel Kirby Heating. Segal said the amendment folds language from SB 17 into H.34 and adds purpose language focused on recruiting military retirees and spouses into occupations with known shortages such as construction, healthcare and manufacturing.

Kirby Heating, legislative counsel, explained the tax change: under the amendment U.S. military retirement pay would be removed from Vermont taxable income, separate from existing partial exemptions that apply to certain retirement categories. Heating said current law allows a taxpayer to exclude up to $10,000 of military retirement from taxable income, subject to adjusted gross income thresholds (a phased exclusion around AGI $50,000–$60,000 for single filers, higher thresholds for joint filers). The amendment would eliminate the partial-exemption framework for military retirement and exclude that income fully; other partial exemptions (social security, federal civil service, and other contributory retirement systems) would remain unchanged, Heating said.

The proposed amendment also would add a reporting requirement for the Agency of Commerce and Community Development (ACCD). As described by Segal, Section 3 would require ACCD, in consultation with the Office of Workforce Strategy and Development, to report annually by Dec. 1 through Jan. 1, 2029, summarizing marketing and recruitment efforts and outcomes aimed at recruiting military personnel to fill state workforce needs.

Budget and data points: committee members and witnesses discussed preliminary fiscal estimates. Heating said the Joint Fiscal Office estimate for a full exemption is roughly $3,900,000 in foregone revenue annually. Bob Burke, director of Vermont Veterans Affairs, presented Department of Defense data showing 3,594 DOD retirees receiving pay in Vermont (data as of Jan. 31, 2023) and an average annual DOD retirement pay, by Burke’s calculation, of about $27,576. Burke and General Hyde of the Vermont National Guard said the state loses a meaningful number of retirees and that other New England states broadly provide exemptions or more favorable treatment for military retirement.

General Gregory (Maj. Gen.) Hyde testified that taxing military retirement disadvantages recruiting and retention for the Vermont National Guard and that many retired members move to other states that exempt military retirement, taking skills and payroll with them. Hyde provided examples of senior National Guard members who retired and relocated to neighboring states with exemptions.

Bob Burke gave an economic overview: he presented DoD-derived totals for Vermont and New England, explained that DOD retirement pay translates to local spending and economic output, and said that retaining and attracting retirees could increase local payroll and consumer spending. Burke noted that multi-state comparisons show Vermont’s retiree capture is low compared with neighboring states that exempt military retirement.

Jay Ramsey, director of workforce development at the Department of Labor, described existing programs that support veteran transitions and recruitment: the Jobs for Veterans State Grant outreach effort, SkillBridge partnerships (which enable placements of service members into employer roles while still in service), and coordination with employers and community relocation grantees. Ramsey said the department conducts periodic recruitment trips (for example to Fort Drum) and coordinates relocation referrals through ACCD grantees.

Committee questions focused on: (1) the fiscal cost and Joint Fiscal Office estimate; (2) how many veterans currently use the partial exclusion and how many retirees live in Vermont now; (3) whether survivor benefits would be included (witnesses said current wording excludes survivors' certain offset benefits); (4) targeting specific installations for recruitment rather than broad outreach; and (5) complementary non-tax recruitment tools (relocation supports, SkillBridge, employer partnerships).

No formal motion or committee vote was recorded during the hearing. Participants requested additional data (for example, economic analyses from other states after exemption changes and detailed JFO estimates) and discussed next steps including targeted recruiting strategies with ACCD, Department of Labor and the Vermont National Guard.

Selected direct quotes from the hearing:

"By eliminating military retirement pension taxation and simultaneously implementing strategic workforce training initiatives, Vermont can capitalize on military retirees and their spouses to supply valuable labor for various in-demand industries," Rick Segal said when summarizing the amendment’s objectives.

"Taxation of military retirement and survivor benefits puts Vermont at a significant disadvantage when it comes to recruiting and retaining service members for our National Guard," Maj. Gen. Gregory Hyde testified.

"Total retirees in Vermont receiving pay from the DOD: 3,594," Robert (Bob) Burke, director of Vermont Veterans Affairs, said when presenting DoD figures; he added that those retirees generate local spending and economic output that could expand if capture and retention improved.

Next steps recorded in the hearing record include requests for more detailed fiscal analysis from JFO, comparisons with other New England states that have recently changed exemptions, and targeted recruitment planning between ACCD, the Department of Labor and the National Guard. The committee did not take a formal vote on the amendment that day.