Ways & Means opens tax workshop series with primer on tax bases, rates and six guiding principles

The Ways & Means Committee convened the first of a four-part tax workshop series where Legislative Council analyst Kirby Keaton and Joint Fiscal Office Associate Fiscal Officer Chris Roop explained basic tax concepts and the trade-offs lawmakers face when drafting tax policy.

Keaton, who handles the tax portfolio for Legislative Council, framed tax policy in three parts: the tax base, the tax rate and tax liability. He told the committee that "one way of thinking about this is you take a tax base, you multiply that by your tax rate, and you get the tax liability." Keaton emphasized that exemptions, deductions and credits shrink the base and create compliance costs for taxpayers and administrators.

Roop outlined what he called the six principles of a high-quality tax system — sustainability and reliability, fairness, simplicity, economic competitiveness, tax neutrality and accountability/transparency — and walked through how Vermont’s current tax features map to those trade-offs. "You should strive to develop a tax system that's easy for taxpayers to understand and comply with and administer," Roop said when describing the principle of simplicity.

Workshop speakers gave several concrete state examples. Keaton and Roop noted the statutory 6% state sales tax and that some jurisdictions add a 1% local option tax. Roop said the state rooms tax is 9% at the state level and warned that other states layer additional local taxes on top of a state rate. On income tax, Roop said Vermont’s top marginal rate is 8.75% while the average effective personal income tax rate on Vermont resident returns in 2022 was 3.8%.

Roop summarized fairness analysis that compares tax types across income groups, citing work by organizations that model state tax systems. He said Vermont ranks near the less-regressive end of the country in that analysis: "Vermont is the 49th out of 51 least regressive state," meaning the state’s overall tax mix is not a net driver of income inequality under that model. He also pointed to refundable credits such as the earned income tax credit and the child tax credit that create negative effective tax liability for lower-income filers.

Both presenters discussed common trade-offs. Keaton warned that narrowly targeted exemptions or deductions can be costly to administer and can produce large, unexpected audit liabilities for taxpayers who misapply complex rules. Roop highlighted the tension between fairness and simplicity, noting that broad bases with lower rates can reduce the burden on any single taxpayer while targeted exemptions can reduce regressivity but increase transaction costs.

The presenters also described accountability tools used in Vermont. Roop said the state produces a tax expenditure report every two years that lists exemptions, statutory purposes and revenue estimates. As an example of how legal definitions can complicate otherwise simple rules, Roop read the statute’s description for candy and noted how quickly food-tax rules can become detailed: "Candy is a preparation of sugar, honey, or other natural artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, chops, or pieces... candy shall not include any preparation containing flour and shall require no refrigeration."

The session was educational in purpose: presenters repeatedly invited committee members to request deeper research and said the slides and recording will be posted on the committee website. No formal motions or votes were taken during the workshop.

The committee scheduled additional workshops in the series; presenters suggested topics such as a deeper dive on income tax to follow. Keaton and Roop closed by encouraging legislators to weigh which principles they prioritize when proposing tax changes and to consider systemwide effects rather than single-item changes.